What is Liquidity Providing?
Learn why people provide liquidity, how fees work, and what to expect.
Key Takeaways
- Liquidity providers earn a share of every trade in their pool
- More trading volume means more fees for you
- MaxFi automates LP management with massive IL reduction
Why Provide Liquidity?
When you provide liquidity, you earn fees. Every time someone trades in your pool, a small fee goes to you.
Think of it like owning a toll road. Cars drive through. Each car pays a toll. You collect the tolls.
The more cars (trades), the more tolls (fees) you collect.
How Fees Work
Each pool has a fee tier. Let us say the fee is 0.30%.
A trader swaps $10,000 of tokens. The fee is $30. That $30 gets split among all liquidity providers in the pool, based on how much they deposited.
More trading volume means more fees. Busy pools earn more.
What Makes a Good Pool?
Three things matter:
- Trading volume: More trades = more fees
- Fee tier: Higher tier = more earned per trade
- Volatility: More price movement usually means more trades
WETH/USDC pools tend to have the highest volume. That is why they are popular.
Why Not Do It Manually?
You can provide liquidity without MaxFi. But there is a problem.
Concentrated liquidity requires you to set a price range. If the price moves outside your range, you stop earning. You need to adjust your position manually.
This happens often. Sometimes daily. Sometimes hourly. Managing it yourself is a full-time job.
MaxFi automates this. It watches the price. When a rebalance is needed, it does it. And it uses zero-swap rebalancing, which means massive IL reduction compared to doing it yourself or using other managers.
The MaxFi Fee
MaxFi charges a 15% performance fee on your earnings only. If you earn $100 in fees, MaxFi takes $15. You keep $85.
If you earn nothing, you pay nothing. Simple.
What You Learned
- Liquidity providers earn a share of every trade in their pool
- More trading volume means more fees for you
- MaxFi automates LP management and reduces IL significantly