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Learn how to provide liquidity and more.
Before we start let's dive into what it means to provide liquidity into a liquidity pool through a decentralized exchange.
Providing liquidity is the act of taking a combination of assets and providing them for other users to use as trading liquidity. In Extract's case we are providing CNFTs + ADA into policy ID specific pools. Liquidity provided is then available for users to trade and swap with.
As a liquidity provider on Extract you can now put your NFTs/ADA to work and earn a portion of the fees that Extract incurs from users trading within pools.
Please be mindful not to deposit rare NFTs into the pools, as they will be treated the exact same as any other NFT and can easily be swapped out or bought by another user for floor price.
Above is the Earn homepage where you can view your active liquidity provisions (Your deposits), as well as the most popular pools by volume.
On this page you can add more liquidity to active deposits, withdraw fees and/or active deposits. As well as create new deposits into new pools.
When you click onto "Provide liquidity" you will be taken to the next page. This page will allow you to search through all available pools to provide liquidity for. There is also lots of information on this page such as TVL, price, volume, collection size, etc. Make sure to read and understand each variable before choosing a collection.
Choose your pool and you will be presented with the next steps.
Here you will be asked to choose the deposit type. There is only one deposit type, please choose the first available one to progress to the next stage. More deposit types may become available in future.
The final slide will allow you to choose exactly which NFTs you'd like to deposit into the pool. This page will showcase NFTs from your connected wallet, as well their rarity. We have also added a slider which will automatically choose NFTs as you slide it along.
Once you start selecting NFTs the "Pair ADA Amount" will start to increase, for every 1 NFT chosen or unselected this variable will move based off the pools floor price.
Pairing your NFTs with ADA allows the pool to maintain a healthier and more accurate floor price as there is more liquidity in the pool.
Once you decide on the NFTs you want to deposit you can click "Confirm deposit" and sign the transaction. Once the transaction is confirmed the Earn homepage will then showcase your new deposit and accrued fees.
LP tokens are given to liquidity providers as a certificate of providing liquidity. Each deposit made by a user will grant them a certain amount of LP tokens, based off value of deposit. These LP tokens are your ticket to withdraw your deposited NFTs/ADA from the liquidity pool. If you sell or transfer these you will no longer be able to withdraw your deposit, the person holding the LP tokens will. Please be aware of this.
When viewing your active deposits on the Earn homepage you can choose to withdraw liquidity. If so, you will be taken to the above page.
When withdrawing liquidity you are able to choose which NFT you want to withdraw from the pool. Essentially you are swapping your initially deposited NFT with a new one of your choice from within the pool. You will also be returned an amount of ADA with your NFT. This is the same thing as our swap feature, but in this case you have swapped NFTs after providing liquidity.
There is also the possibility you are only able to pull out an amount of ADA equivalent to how much your deposit is worth at the time of withdraw.