x * y = k. Liquidity Providers (LPs) lock their tokens in a pool at a certain ratio of
ythat determines the price the pool offers to the community.
kof the pool. In cases where the liquidity pair does not exist, you get to set the ratio of the liquidity pool by the amounts of tokens you choose to provide.
SEFItokens, the Secret Finance governance token, as a reward. Currently, the pairs with rewards available are:
sSCRTto the liquidity pool and own 100% of the pool. If the market price of
sSCRTincreases to 4
sDAI, arbitrageurs will buy
sSCRTuntil the pool's price reflects the market price. This removes
sDAIto the pool until the pooled tokens are 35
sSCRTwould now be worth $40. With the pool exchanging some of the tokens, the 8.6
sSCRTis now worth around $34. The difference of $6 is the impermanent loss. It is referred to as impermanent because the pool tokens are in constant flow and the amounts will continue to change. Once the LP withdraws the tokens from the pool, this loss would become permanent. This risk is why incentives are provided to compensate Liquidity Providers. If you're interested in calculating impermanent loss, click here for a compatible calculator.