SushiSwap is another decentralized exchange(DEX) called an automated market maker (AMM). It lets users trade cryptocurrency tokens, but there's no central authority managing trades and order books. Instead, traders can exchange Ethereum ERC20 tokens on SushiSwap without having to trust anyone with their funds. Meanwhile, you can lend your crypto to special reserves called "liquidity pools" they earn fees for each trade.
A liquidity pool is a collection of funds locked in a smart contract. Liquidity pools are used to facilitate decentralized trading, lending, and many more functions we will explore in this guide.
You can become a Liquidity Provider (LP) by adding an equal value of two tokens in a pool to create a market. In exchange for providing your funds, you will be earning a trading fee (0.25%) from each trade that happens in your pool, proportional to your share of the total liquidity.
How does it work?
Liquidity providers create a market by depositing an equivalent value of two tokens, e.g. USDT/CVNX. In return, liquidity providers get “liquidity tokens,” which represent their share of the entire liquidity pool. These liquidity tokens can be redeemed for the share they represent in the pool.
Let’s consider the ETH/CVNX liquidity pool. We’ll call the CVNX part of the pool x and the USDT part y. SushiSwap takes these two quantities and multiplies them to calculate the total liquidity in the pool. Let’s call this k. The core idea behind Uniswap is that k must remain constant, meaning the total liquidity in the pool is constant. So, the formula for total liquidity in the pool is:
x * y = k
CVNX price calculation
Let’s say Alice buys 1000 CVNX for USDT using the USDT/CVNX liquidity pool. It increases the USDT amount and decreases the CVNX amount in the pool. This effectively means that the price of CVNX goes up, because of there is less CVNX in the pool after the transaction, and the total liquidity (k) must remain constant. This mechanism is what determines the pricing. Ultimately, the price paid for CVNX is based on how much a given trade shifts the ratio between X and Y.
Impermanent loss happens when you provide funds to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. In this case, the impermanent loss just means a "lost profit" whereas you could sell the asset when its price increases, instead of locking in the liquidity pool. Pools that contain assets that remain in a relatively small price range will be less exposed to impermanent loss. Stablecoins such as USDT also will stay in a relatively contained price range. In this case, there’s no risk of impermanent loss for liquidity providers (LPs).
impermanent loss just means a "lost profit" whereas you could sell the asset when its price increases, instead of locking in the liquidity pool.
To learn more information about the "Impermanent Loss" you can google in internet.
Are you ready to start providing liquidity on SushiSwap?
Here we guide you on how to become a liquidity provider for CVNX/USDT pool with MetaMask wallet.
IMPORTANT NOTES BEFORE YOU START ON SUSHISWAP
1. The locked fund in the liquidity pool never leaves your wallet! Your tokens won't be sent anywhere.
2. You will be receiving 0,25% fee of each trade in both tokens. The 0.25% fee is divided to all liquidity providers of a particular pool. For instance, if you provide 25% of the liquidity for FUN/DAI pools, you earn 25% of the collected fees. And these fees are added back into the liquidity pool.
3. You can remove the liquidity and refund your tokens any time.
4. You can collect the reward fee after removing the liquidity.
5. You can add unlimited number of liquidity pools and even create more trading pairs for CVNX
This guide will provide you with all the steps to provide liquidity for USDT/CVNX pool with MetaMask wallet.
Step 1. Open your internet browser (Google Chrome recommended) and go to https://app.sushi.com/pool
Step 2. On the Sushi swap web page make sure that "Pool" tab is active on the left-top corner
Step 3. Click on Connect to a wallet button and choose your wallet (e.g. MetaaMask)
Step 4. Click on "Connect" button
Step 5. Once your MetaMask wallet connected click on "Add" button
By adding liquidity you'll earn 0.25% of all trades on this pair\nproportional to your share of the pool. Fees are added to the pool, accrue in real time and can be\nclaimed by withdrawing your liquidity.
Step 6. Select "USDT" token instead of "ETH".
ATTENTION! Only the CVNX/USDT pool is available on SushiSwap DEX so far. You can create CVNX pool for any other token available on SushiSwap DEX and provide liquidity.
Step 7. In the Liquidity window you should select a token which you like to sell for USDT.
The CVNX token is not available yet in Sushiswap default tokens list. You should import the token manually once by .
Copy and paste the CVNX contract address 0xA1a4E303e9C56962F201C5e834abC1E677A3C4F3 and click "Import" button.
Step 8. Enter deposit amounts for both tokens CVNX and ETH, then click on "Confirm Adding Liquidity" button.
When you enter the deposit amount for one token, the amount field of the second token will be calculated automatically according to the total liquidity pool size.
You may be requested to approve a permission transaction to permit access SushiSwap on your USDT and CVNX tokens in the wallet address.
Step 9. Next, review the rate details details and confirm the supply.
Step 10. Then confirm the transaction in your Metamask wallet
Step 11. Once the transaction is confirmed, you'll find your position in the liquidity pools list.
How to remove your liquidity on SushiSwap?
By adding liquidity you'll earn 0.25% of all trades on CVNX/USDT proportional to your share of the pool. Fees are added to the pool, accrue in real-time, and can be claimed by removing your liquidity.
To remove your liquidity from pool and collect the reward, please follow the below steps:
Step 1. To remove some part of your liquidity or the whole amount click on "Remove" button, and enter the % of amount you want to withdraw. The tokens amount will be calculated automatically.
Step 2. Sign the request in your Metamask wallet
Step 3. Then click on "Confirm Withdrawal"
Step 4. Review the withdrawal details and confirm again in the pop-up window
Step 5. And finally confirm the transaction in your Metamask wallet
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