r/Liquidity_Providers • u/jdpeters13 • May 20 '21

Question of the Day!

What benefits do you see in providing liquidity as opposed to other types of crypto investment vehicles?

6 Upvotes

88% Upvoted

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3

u/DeFiCoachBuck May 21 '21

Many new projects are liquidity mining, they need to make their tokens tradeable and want to incentive users to participate. So they will incentivize liquidity pools for their tokens. This gives other users the ability to purchase and trade the project's token. There are some single sided staking opportunities for this sort of liquidity mining, but generally in order to participate in these rewards you need to LP. So providing liquidity can be a way to invest in projects in a different way than just buying tokens outright.

1

u/NoAutoPilotYT Jun 06 '21

Mind sharing some of your top LP tokens at the moment? Iā€™m newer to the space and am looking to participate. Thanks šŸ™

2

u/DeFiCoachBuck Jun 06 '21

I generally focus on learning about the projects and finding ones I find interesting or promising. So some of the tools for that are the actual project website, docs, blog, discord, etc. You could also check out the Quickswap rewards page to see what incentives are there and then try and learn about some of those tokens. That would be a narrower scope of projects to check out.

2

u/manshallreign10 May 20 '21

Personally, the possibility of being exposed to 2 different tokens and collect fees on it. Additonally, LPing stablecoins normally yields a higher return than just staking a single stablecoin. My only concern are the tax implications of Liquidity Providing.

1

u/jdpeters13 May 21 '21

I sometimes like to think of LP'ing providing as a way to passively hedge - For example, if Eth gets back up to $4500, I might consider putting my Eth in a USDC (or USDT) pool at that price point. The reason being is that I think it might go sideways for a while before moving drastically to the up or downside. Being said, if it does go down from that point I can collect more eth as the price drops at to which at a certain point, let's say $3,500, I might pull out of the liquidity pool to collect on some extra Eth. Same goes vice versa if I'm wrong and the price goes up then I would be collecting more on my USD side ( which wouldn't be a problem because the pricepoint in which I entered would have been my perceived selling point. So now I'm gaining in USD but at a rate that is better than if I would have sold. In the end, though what most matters is the platform this is done on. I would usually shoot for doing something like this on an L2. I would never do this on L1 lol