Providing liquidity is a moderately advanced feature. Start with small amounts and understand the risks before committing significant funds.
What Are Liquidity Pools?
Liquidity pools are collections of two tokens that enable trading on decentralized exchanges. When you provide liquidity, you’re essentially becoming a market maker and earning a share of trading fees.v1 Pools
- Classic AMM pools
- LP tokens represent your share
- Fixed 0.3% fee structure
- Simple to understand and use
v2 Pools
- Concentrated liquidity pools
- NFT positions represent your share
- Multiple fee tiers (0.05%, 0.3%, 1%)
- More capital efficient
How Liquidity Pools Work
Basic Concept
- Equal Value: You provide equal dollar values of two tokens
- Trading Fees: You earn a portion of all trading fees in the pool
- Impermanent Loss: Token price changes can affect your position value
- Rewards: Additional rewards may be available (BONE tokens on Ethereum)
v1 vs v2 Comparison
| Feature | ShibaSwap v1 | ShibaSwap v2 |
|---|---|---|
| Position Type | LP tokens | NFT positions |
| Liquidity Range | Full price range | Custom price ranges |
| Fee Structure | Fixed 0.3% | Multiple tiers |
| Capital Efficiency | Standard | Higher with concentration |
| Complexity | Simple | Advanced |
| Rewards | Trading fees + BONE | Trading fees + time bonuses |
How to Provide Liquidity
1
Navigate to Liquidity Pools
Go to the Liquidity Pools section on ShibaSwap.
You can access this from the main navigation menu.
2
Choose Your Version
Decide between v1 (simpler) or v2 (advanced):
- v1: Click “Add Liquidity” for classic pools
- v2: Click “Create Position” for concentrated liquidity
3
Select Token Pair
Choose the two tokens you want to provide liquidity for.
Make sure you have sufficient amounts of both tokens in your wallet.
4
Enter Amounts
Specify how much of each token you want to provide.
The interface will automatically calculate the required amounts to maintain equal value.
5
Configure Settings (v2 Only)
For v2 pools, set additional parameters:
- Fee Tier: Choose 0.05%, 0.3%, or 1% fee pools
- Price Range: Set the price range for your concentrated liquidity
- Slippage Tolerance: Maximum acceptable price change
6
Review Pool Information
Check the details:
- Your share of the pool
- Estimated fees you’ll earn
- Pool statistics (TVL, volume, fees)
- Price range (v2 only)
7
Confirm Transaction
Review all details and confirm the transaction in your wallet.
Understanding v2 Concentrated Liquidity
What is Concentrated Liquidity?
Instead of providing liquidity across the entire price range, you can concentrate your liquidity within specific price ranges where you expect most trading to occur.Concentrated liquidity allows you to provide the same amount of liquidity with less capital, potentially earning higher fees.
Setting Price Ranges
- Narrow Range: Higher fees but higher impermanent loss risk
- Wide Range: Lower fees but lower impermanent loss risk
- Current Price: Focus around current market price for maximum efficiency
Fee Tiers
- 0.05%: For stable pairs (USDC/USDT, etc.)
- 0.3%: For most trading pairs (ETH/SHIB, etc.)
- 1%: For exotic or volatile pairs
Managing Your Positions
Viewing Your Positions
- v1: Check your LP token balance in your wallet
- v2: View your NFT positions in the “My Liquidity Pools ” section
Adding More Liquidity
- v1: Use “Add Liquidity” with the same pair
- v2: Use “Increase Liquidity” on your existing NFT position
Removing Liquidity
- v1: Use “Remove Liquidity” and burn your LP tokens
- v2: Use “Decrease Liquidity” on your NFT position
Collecting Fees
- v1: Fees are automatically added to your position
- v2: Manually collect fees using the “Claim Rewards” function
Earning Rewards
Trading Fees
You earn a portion of all trading fees proportional to your share of the pool:- v1: Fixed 0.3% of all trades
- v2: Variable based on your chosen fee tier
Additional Rewards (Ethereum)
On Ethereum, you can earn additional BONE tokens:- v1: Stake LP tokens in the “Woof” section
- v2: Concentrated liquidity positions may earn time-based bonuses
Fee Collection
- v1: Fees are automatically compounded into your position
- v2: Manually collect fees when you want to claim them
Risks and Considerations
Impermanent Loss
Impermanent Loss
When token prices change, your position value may decrease compared to holding the tokens separately. This is called impermanent loss.
Smart Contract Risk
Smart Contract Risk
While ShibaSwap is audited, there’s always a small risk of smart contract vulnerabilities.
Liquidity Risk
Liquidity Risk
If you need to remove liquidity quickly, you might face high slippage or low liquidity.
Price Range Risk (v2)
Price Range Risk (v2)
If prices move outside your chosen range, you won’t earn fees until prices return to your range.
Best Practices
1
Start Small
Begin with small amounts to understand how liquidity provision works.
2
Choose Stable Pairs
Pairs with correlated prices (like USDC/USDT) have lower impermanent loss risk.
3
Monitor Your Positions
Regularly check your positions and adjust if needed.
4
Understand Impermanent Loss
Learn about impermanent loss before providing significant liquidity.
5
Consider v2 for Efficiency
v2 offers better capital efficiency but requires more understanding.
Common Scenarios
I Want to Provide Basic Liquidity
- Choose v1 for simplicity
- Select a popular token pair (ETH/SHIB, USDC/USDT)
- Provide equal values of both tokens
- Earn trading fees automatically
I Want Maximum Efficiency
- Choose v2 for advanced features
- Select appropriate fee tier
- Set price range around current market price
- Monitor and adjust as needed
I Want to Earn BONE Rewards
- Provide liquidity on Ethereum (v1 or v2)
- For v1: Stake LP tokens in the “Woof” section
- For v2: Concentrated liquidity positions may earn bonuses
- Claim rewards regularly
Troubleshooting
Transaction Failed
- Check gas fees
- Verify token approvals
- Ensure sufficient token balance
- Try again with higher gas
High Slippage
- Try smaller amounts
- Choose more liquid pairs
- Wait for better market conditions
Position Not Showing
- Refresh the page
- Check correct network
- Import position manually if needed
Low Fee Earnings
- Check if position is in range (v2)
- Monitor trading volume
- Consider different fee tiers
Migration from v1 to v2
Why Migrate?
- Better capital efficiency
- More fee earning opportunities
- Advanced features and controls
How to Migrate
- Go to the Liquidity Pools page
- Find your v1 position
- Click “Migrate to v2”
- Follow the migration process
- Set your v2 parameters (fee tier, price range)
Migration is optional. You can continue using v1 if you prefer its simplicity.
Related Resources
Getting Started
Complete beginner’s guide to ShibaSwap.
Swap Tokens
Learn how token swapping works.
v2 Features
Advanced concentrated liquidity features.
Impermanent Loss
Understanding impermanent loss risks.
Liquidity provision is a great way to earn passive income while supporting the ShibaSwap ecosystem. Start small, learn the risks, and gradually increase your positions as you become more comfortable.