How to become a Trips Liquidity Provider on xDai
LP can be used to refer to either a liquidity provider or a liquidity pool. For this article, we’ll refer to LP as the pool.
Blockchain — A ledger of data blocks (such as transactions), linked in a chain. The blockchain is verified by validators on the network, using a decentralized consensus mechanism.
Blockchain Network — Distributed and decentralized network of nodes that maintain the blockchain.
Ethereum — Hugely popular blockchain that introduced smart contracts, a platform for decentralized apps and responsible for the boom of DeFi; decentralized finance.
So what is LP? The pool is a smart contract that locks in a pair of tokens. The Trips LP is a pair of the Trips and xDai tokens on the Honeyswap platform, built on the xDai chain; a side-chain to the Ethereum Mainnet blockchain.
Honeyswap is a decentralized exchange that allows you to swap tokens via Liquidity Pools.
The xDai chain uses the xDai token, which is used to pay for transaction network fees. With xDai being a stablecoin, fees are stable and inexpensive — unlike Ethereum mainnet, where ETH is used for fees and are insanely inflated with the price of ETH.
When someone adds to the LP, they get UNI-V2 LP tokens in return. Why is it called UNI-V2? It’s a legacy token name from Uniswap V2. Honeyswap is a fork (branch) off of Uniswap V2.
These LP tokens represent your share of the LP. They are required to access and remove your liquidity. If you try to sell these tokens, you are essentially selling the keys to the liquidity they represent.
Rewards and Risks of being a Liquidity Provider
0.3% of all swap volume for the token that is being swapped goes to liquidity providers as a protocol incentive. So for every xDai/Trips swapped, 0.003 xDai/Trips is shared amongst the liquidity providers.
The main risk with LPs is something called Impermanent Loss. It is complex to fully explain, but essentially…
It is the possibility that the tokens you supply to the LP will have a lower value as opposed to just holding the tokens in your wallet. It can happen when there is a divergence in the price of the tokens in the LP and other secondary exchanges…
E.g. Someone spots a higher price for the Trips token on another exchange and sees an opportunity to make a profit; by buying cheaper from the LP and selling it on the other exchange. This is called arbitrage.
The protocol behind LPs are designed to rebalance over time. A potential loss does not become permanent, unless you withdraw your liquidity from the pool, while the LP’s value has decreased.
To offset the potential risk, the Trips community runs their own separate rewards system for liquidity providers. To take full advantage of this, you should definitely get involved on the discord server.
Preparation for adding to the pool
To interact with the pool on Honeyswap, you need a wallet that supports the xDai network. The most commonly used one is MetaMask so we will use that in this article. If you have not set up a MetaMask wallet for xDai yet, read this guide first.
You will also need to have Trips and xDai in your wallet for adding to the pool. The easiest way to get xDai is buying through Ramp (if the option is available to you). At the time of writing this article, xDai is not available via Ramp, to purchase for customers in USA.
With xDai in your MetaMask wallet, you can purchase Trips tokens on Honeyswap. The Trips discord server also airdrops Trips tokens to the community, which you can transfer to your MetaMask wallet.
Adding liquidity to the pool
Now that you understand about the tokens involved and the benefits, let’s move on to, how to add our Trips to the LP.
If you go via the second method, you will have to manually select the Trips token. If the Trips token does not appear in the token list, you can either enter the token address or update your token list (described in this article).
When you add to the LP, you need to provide an equivalent value for both pairs. The amount of xDai needed to pair with Trips will fluctuate according to the token price for Trips.
Set the amount for either Trips or xDai and the other token amount will automatically be calculated to match the equivalent value.
First we need to approve the Honeyswap platform to use the Trips from our wallet. Pressing the Approve TRIPS button will bring up a MetaMask window to confirm the approval.
On pressing Confirm, a notification shows whether it was successful. If so, the Approve TRIPS button for Add Liquidity in Honeyswap should disappear.
Press the Supply button to bring up a confirmation screen showing how many Pool Tokens you will receive.
If you are not happy with the amount of LP tokens, hit the close button and adjust the token amounts. Press the Confirm Supply button to bring up a MetaMask confirmation.
If you were making transactions on Ethereum Mainnet, you would probably pay a lot of attention to the Gas Price and Limit here as transaction fees can be extremely high.
On xDai chain however, the transaction fees are so low, that you can just set the Gas Price at 1 GWEI and ignore the Gas Limit. The transaction above went through at only $0.000183!
Press the Confirm button to finalize the transaction to add liquidity. A notification should show whether it was successful.
Viewing Your LP Tokens and Liquidity
The LP tokens will be in your wallet on the blockchain. To view the balance for it, we need to add the LP token to our MetaMask. Open MetaMask and at the bottom of the Assets list, press the Add Token button. Click on the Custom Token tab and enter the following address…
The Token Symbol and Precision should automatically fill out. There is no distinction in LP token symbol for the different LPs on Honeyswap, so it’s a good idea to use the Edit option to rename UNI-V2, e.g. TRIPS LP.
Press the Next button, and you should see the balance of LP tokens received from the earlier transaction. Press the Add Tokens button and then the back button at the top left to go back to your account start screen.
If press the ← from the Add Liquidity screen on Honeyswap, you will return to the main Pool tab.
You should now see a new section that shows Your Liquidity. You can expand it to see the full details with an option to Remove liquidity.
Notice how the balance of Trips and xDai have changed since being entered into the Pool at 48 Trips to 2.77232 xDai. The LP protocol automatically adjusts the pair ratio to maintain a 50:50 value split.
You can view more information on the Trips/xDai LP Honey Info page.
It would be a good idea to bookmark this page, so you can easily check the status of the LP. There are also handy links at the top right for trading the token pair or adding more liquidity.
The plus symbol beside these links, allow you to bookmark the token pair into the bookmarks side menu. You can open the menu using the bookmark button at the top right of the page.
If you go to Accounts from the left menu, you have the option to load Account Details using your wallet address.
Getting involved with the Community and Projects
If you’ve not explored and found us on the discord server yet, do come and pop in for a visit. Besides getting more free Trips as an LP provider, there are free Trips for other things, just by getting involved.
You can also learn more about the latest things happening within the Trips ecosystem. Maybe get involved with governance, and help to shape the future.
Other Related articles that may be useful
To set up a MetaMask wallet and make transactions with crypto currencies, follow this guide.
If you want to increase your liquidity position size, you can buy more Trips on Honeyswap.