FAQs > Providing Liquidity

Providing Liquidity

Q: Why have the amounts of XTZ and FA1.2 tokens I provided changed?

A: As a liquidity provider, you are pooling your XTZ and FA1.2 tokens with others into a single smart contract, and traders will exchange with this common pool of assets. Dexter is an automated market maker, meaning that when a user wants to swap XTZ for a token or vice versa, the liquidity pool will make a market for this trade automatically. Liquidity providers collectively take the other side of this trade, therefore your XTZ and FA1.2 token balance will change slightly with each trade.

Q: What is divergence loss (sometimes called impermanent loss)?

A: We can’t explain it any better than the way Finematics does here.