Provide Liquidity on Glue

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Last updated 4 months ago

Provide Liquidity on Glue

Liquidity Pools

Providing liquidity on Glue is easy and straightforward. By adding your tokens to a liquidity pool, you enable smooth token swaps for other users while earning rewards in the form of trading fees and incentives.

Liquidity provision works by pairing two tokens in a pool, allowing traders to swap between them seamlessly. In return, you earn a share of the transaction fees proportional to your contribution to the pool. It’s a great way to put your idle assets to work, earn passive income, and contribute to the efficiency of the Glue ecosystem.

Whether you’re new to DeFi or an experienced participant, Glue’s intuitive interface and tools make managing your liquidity simple and rewarding.

Lets get started.

Add Liquidity

To become a liquidity provider, simply click on 'Pools' on the top left hand side. For the purposes of this guide, let us add liquidity to the GLUE - USDg pool.

Click on '+ New position'.

Select a pair will allow for selection of the assets that a liquidity is being added to. In this case, GLUE - USDg.

Select a 'Fee tier'. This is the percentage you will earn in fees.

Next, set a price range. When providing liquidity, you’ll need to define the price range in which your liquidity will be active. This is an important step, as it determines how your funds will be utilized and the rewards you can earn.

Understanding Price Ranges

Option 1: Full Range

Selecting the ‘Full Range’ option means your liquidity will be spread evenly across the entire price spectrum, from 0 to infinity.
This is a simple and beginner-friendly choice, as it doesn’t require any specific market knowledge or prediction about price movement.
However, be aware that spreading liquidity across the full range may dilute your earning potential, as much of your liquidity might remain unused if the token price stays within a narrower range.

Option 2: Custom Price Range

Alternatively, you can specify a low price and a high price to concentrate your liquidity within that range.
This approach is more efficient if you expect the token price to stay within a specific range, as it focuses your liquidity where it is most likely to be used.
For example:
- If you believe a token pair’s price will trade between 100 and 150, you can set this range to maximize your exposure to fees within this price window.
Setting a custom range requires a bit of market knowledge or analysis, but it can significantly increase your returns if done correctly.

Factors to Consider

Market Volatility: If the price moves outside your selected range, your liquidity will no longer earn fees until the price re-enters your range.
Risk Tolerance: A narrower range increases efficiency but also carries more risk of being out of range, while a wider range offers more coverage but dilutes potential returns.
Dynamic Adjustment: You can always adjust your price range later by withdrawing and re-depositing liquidity with a new range.

By carefully selecting the price range that aligns with your strategy, you can optimize your liquidity provision to balance risk and reward effectively.

For this guide, let's go with full range.

Now decide in the deposit amount or how much you would like to add to the liquidity pool.

When providing liquidity, you’ll notice that the deposit amounts for the two assets in a pair are required to be equal in value (50/50). This balance is a fundamental aspect of how liquidity pools operate and is essential for maintaining pool efficiency and fairness.

Why Deposit Amounts Are Split 50/50 Between Assets

The 50/50 split ensures that the liquidity pool remains balanced, allowing users to swap assets seamlessly at any given time without causing price imbalances.
For example, if you're depositing into a pool for Token A and Token B, you must provide an equal dollar value of each token. If Token A is worth $2 and Token B is worth $1, you would need to deposit 1 Token A for every 2 Token B.
This equal deposit mechanism helps preserve the pool’s integrity and prevents large swings in the token prices caused by imbalanced liquidity.
It ensures that liquidity providers (LPs) are not disproportionately exposed to one asset, reducing the risk of impermanent loss.

If your asset amounts are not balanced, the system will automatically adjust the deposit to match the required ratio. This may result in leaving some excess tokens in your wallet, which you can use for future transactions.

Glue Swap

After connecting your wallet:

In the "You pay" section, select the token you want to swap by clicking the token dropdown and choosing from the list.

In the "You receive" section, select the token you want to receive in exchange.

Enter the amount you wish to swap in the "You pay" field. The corresponding amount for the "You receive" token will be calculated automatically.

The estimated fee is also calculated automatically, if you would like further information on this transaction, click on the gas pump icon on the bottom right hand side.

Click on 'Swap'. A pop up will appear to review the swap. Once happy, click on 'Confirm swap' and confirm the transaction in your wallet.

Once happy, click on 'Confirm swap' and confirm the transaction in your wallet.

Click on 'Approve USDg' and sign the transaction in your wallet.

Once the approval is done, you can click on Preview.

The preview function will give you the chance to review the position, ensure everything is as it should be before adding the liquidity to the pool.

Once happy, click on 'Add' and sign the transaction in your wallet to submit the transaction.

Clicking on 'Close' will take you to 'Positions' page, where you can view and manage your positions.

By clicking on the position, you will be able to see the details of the position, increase the liquidity or remove liquidity.

Increase Liquidity In An Existing Position

Under 'Pool', all your positions will be listed. Click on a position to see further details.

On the top right hand side, click on 'Increase liquidity'. The 'Add liquidity' page will show your current position, size, fee tier and range. With the option to 'Add more liquidity'.

Decide and add the amount of liquidity you would like to add and click on 'preview'.

Preview will pop up for you to review and ensure everything is as it should be.

Once happy, click on 'Add' and sign the transaction in your wallet.

And that's it, you have successfully added more liquidity to an already existing position.

Remove Liquidity

Under 'Pool', all your positions will be listed. Click on a position to see further details.

On the top right hand side, click on 'Remove liquidity'.

When you remove liquidity, the amount withdrawn is split 50/50 between the two assets in the pool. This ensures the pool remains balanced for other users. For example, removing 50% of your liquidity will return equal dollar values of both assets to your wallet, preserving the pool’s stability.

Click on 'Remove' to review.

Click on 'Remove' in the pop up and sign the transaction in your wallet.

And that's it, the assets you removed from the liquidity pool will now be available in your wallet.