FAQs > Liquidity

Providing Liquidity

Q: What are liquidity fees, and how are they calculated?

A: You may notice a liquidity fee is charged when you exchange Tezos tokens. The Dexter exchange relies upon liquidity providers to deposit their funds into Dexter smart contracts in order to provide liquidity on the exchange. The liquidity fee charged and distributed proportionally to all liquidity providers is 0.3%. Anyone can provide liquidity using the Dexter UI.

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.

Q: How do I get baking rewards for liquidity I have provided?

A: The XTZ portion of liquidity provided to Dexter is delegated to a baker. Liquidity providers receive baking rewards directly to the wallet address they are using to provide liquidity. Some bakers require a minimum amount of XTZ to be delegated in order to pay out baking rewards. Happy Tezos, one of the bakers of Dexter liquidity pools, has a minimum payout of 0.01 XTZ, which amounts to a minimum delegation amount of about 25 XTZ. If you have provided sufficient liquidity to receive baking rewards, you should begin to receive them after 7 cycles, which equates to about 5 weeks.

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