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Gate.io Help Center

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FAQ - Liquidity Mining
Gate.io
Updated at:186 days 1 hours ago
lv

Q1. What is Liquidity Mining?

Each market that supports AMM is equipped with a corresponding liquidity pool. Users who inject funds into the pool automatically turn out to be liquidity providers and indirectly become market makers while receiving commission dividends for their trades, which is called Liquidity Mining.

Q2. What is Automated Market Maker(AMM)?

The automated market-making bot determines the swap price based on the ratio of the two tokens in the pool, and the trader will place an order at the price determined by the system. The use of algorithmic bots to simulate trading behavior in the market and provide liquidity to the market is known as AMM(Automated Market Maker). Gate.io's AMM calculates transaction prices based on the Constant Product Market Maker Model (x*y=k) and thus provides continuous quotes for the market.

Q3: What is a liquidity pol?

Each market that supports AMM has a corresponding liquidity pool, and the liquidity pool will provide funds for automatic market makers. When trading, the product of both numbers of the two cryptocurrencies in the pool remains constant. Users can become market makers by providing liquidity for the pool, thereby obtaining dividends from AMM transactions within the pool according to their shares. When adding liquidity, it is a must to add two currencies at the same time according to a certain ratio. When making a withdrawal, the liquid assets will be converted into two currencies and withdrawn at the same time.

Q4:What does liduidity mining mean for providers and traders?

For liquidity providers, participating in liquidity mining means that they can use their idle assets to obtain income with a very low risk. For traders, the waiting time for transactions is shortened by a large margin, and the larger the size of the liquidity pool, the smaller the slippage in the transactions.

Q5: How to add liquidity in to a pool?

Switch to “Liquidity Mining" on the spot trading page (left to the candlestick chart). Click on "Add", input the sizes of both currencies on the pop-up "Add Liquidity" window, and click on "Add". The assets will be transferred from your spot account to your AMM account,the added amount must be greater than or equal to 100USDT to be a valid parameter.

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Q6: Are There Any Requirements for Adding Liquidity?

The amount to be added can’t be below 100 USDT to be considered a valid transaction parameter.

Q7: How do I unlock liqui Are There Any Requirements for Removing Liquidity?

If the same trading pair is successfully added, it takes one hour before it can be redeemed.

Q9: What are the benefits of providing liquidity?

By putting assets into a pool, adding liquidity to the pool, a commission from the automatic market making of the liquidity pool will be distributed to the liquidity provider according to his share. Assets can be put in or moved out of the pool at any time without handling fees.

Q10.What Benefits Can I Get from Participating in Gate.io Liquidity Mining?

Gate.io opens liquidity mining pools of different currencies and set up reward pools for these currencies. Apart from handling fees, users who participate in reward pools also receive additional rewards.

Q11:Where do the gains in liquidity mining come from?

Gate.io will pay corresponding remuneration to provide income for liquidity providers. Decentralized trading platforms give handling fees to liquidity providers and the mortgage lending platforms give the loan interest to liquidity providers. Users participating in liquidity mining at Gate.io will receive extra rewards from Gate.io in addition to the handling fees.

Q12:What are the risks for me to provide liquidity?

Impermanent losses can incur, which is the most common loss in liquid mining and is usually unavoidable. Generally speaking, the revenue share provided by the trading platform to liquidity providers usually greatly exceeds the impermanent loss. In addition, DeFi liquidity mining also needs to bear the security risks of DeFi projects, but users participating in liquid mining at Gate.io do not have to worry about security issues.

Q13: What are impermanent losses?

Impermanent loss refers to the loss caused by the price difference of the digital assets in an AMM liquidity pool at the time of deposit and withdrawal. No matter in which direction the price of digital assets changes, impermanent losses will occur, and the greater the difference, the greater the loss.

For example:

Assuming that there are 9GT and 900USDT in the GT_USDT liquidity pool and at this time 1GT is worth 100USDT. The total liquidity is 1800USD.

User A provides 1GT and 100USDT to the GT_USDT liquidity pool. Then there are 10GT and 1000USDT in the liquidity pool, and the value of shares held by User A is 200USD (User A's share is 10%). Now, the total liquidity of the pool is 2000USD.

If the price of 1GT rises to 400USDT. User B buys in GT and puts USDT into the liquidity pool. Although the product of the two currencies in the liquidity pool remains unchanged, the ratio of GT to USDT in the pool changes. Due to User B's transaction, there are currently 5GT and 2000USDT in the pool.

If User A decides to withdraw all his funds (his share is 10%), he can withdraw 0.5GT and 200USDT. The total value of the withdrawal is 400USD. If User A chooses to keep holding 1GT and 100USDT, his total value of assets will reach 500USD and he will have a higher return. This is called impermanent loss. (Note: Handling fees are left out for the convenience of calculation.)

Q14: Where can I view my adding and unlocking records?

Click on "Liquidity Mining Bills" on the spot trading page to view the records.

Alternatively, you may also go to "Wallet"-"Financial Account"-"Liquidity Mining"-"Liquidity Mining Bills".

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