A step-by-step guide to creating a liquidity pool and earning off provided assets
“Schools teach you how to work for money, but don’t teach how to make money work for you.” © Robert Kiyosaki
The DeFi space offers great opportunities for earning off crypto assets. In this guide, we will look at liquidity pools — one of the most common DeFi tool.
- What is a liquidity pool and how can market makers and traders earn off it?
- How can I create a liquidity pool on the 1inch platform?
- How are assets provided to a liquidity pool?
- How can I swap my share in a liquidity pool for underlying assets?
What is a liquidity pool and how can market makers and traders earn off it?
A liquidity pool is a pool of tokens that are locked on a smart contract. People provide liquidity to a pool to collect an interest income, which comes from swap fees.
If a user needs to swap, for instance, ETH for DAI, they can go to a liquidity pool as it has a sufficient number of both ETH and DAI for a swap to be conducted. For swapping their tokens in a liquidity pool, users pay a swap fee.
The total amount of collected fees is split between all liquidity providers in the pool, based on their share.
How can I create a liquidity pool on the 1inch platform?
Go to the EARN section on 1inch and click on the plus button.
Choose the underlying pool assets (for example, GST2 and DAI, as in the screenshot). To create a pool and provide liquidity in one transaction, you need to unlock the sub tokens. Click on the Unlock button to allow the UniswapV2 Router smart contract to make transactions with the selected amount of assets. You can also provide the infinity unlock by clicking the Infinity Unlock button.
Confirm the transaction in the MetaMask confirmation pop-up window.
Now we are ready to create a pool. To do that, click the 🌟 Create Pool & Provide Liquidity button. For Uniswap V2, only one pool per asset pair is available.
Confirm the pool creation in the MetaMask confirmation pop-up window.
Here we are! The GST2<>DAI Pool has been created. Now you can provide more liquidity (or withdraw existing liquidity) by clicking the plus (minus) button.
With 1inch platform, you can provide liquidity to a pool using any token! Source tokens will be converted into underlying tokens at the best rates available in the market.
Also, you will be able to remove liquidity for a token in the same way!
Start earning with 1inch! Visit https://1inch.exchange/#/earn.