Managing Your Liquidity: How to Open and Close Pool Positions on Bitcoin.me DEX

[Harish]

Introduction: Understanding Liquidity Pools

What is a Liquidity Pool?
Unlike centralized exchanges that use order books to match buyers and sellers, decentralized exchanges (DEXs) like Bitcoin.me rely on Liquidity Pools. A liquidity pool is a crowdsourced collection of cryptocurrency assets locked in a smart contract. These pools provide the necessary liquidity for users to seamlessly swap tokens peer-to-peer at any time.

Why are there two tokens in a pool?
Most liquidity pools require you to deposit a trading pair, meaning two different tokens. This is because every trade on a DEX is a swap between two assets. For example, if a user wants to buy KFI using KLV, the DEX needs a reserve of both KFI and KLV to execute that trade. To keep the pool balanced, Liquidity Providers (LPs) must supply both tokens in an equivalent 1:1 USD value ratio (e.g., $10 worth of KFI and $10 worth of KLV).

How do you earn rewards?
By depositing your tokens into a pool, you become a Liquidity Provider. As an LP, you are rewarded for making trading possible. Every time a user performs a swap using your pool, a small trading fee is charged. These fees are added back into the pool, meaning your proportional share of the pool grows over time. When you eventually withdraw your liquidity, you receive your original deposit plus your accumulated share of the trading fees.

How to Add Liquidity (KFI/KLV Pool)

Prerequisite: Ensure your Klever Extension is unlocked, connected to Bitcoin.me, and holds an equivalent USD value of both tokens you wish to provide (e.g., KFI and KLV), plus a small amount of KLV to cover network fees.

1. Navigate to the Pools Page: On the Bitcoin.me DEX top navigation bar, click on the “Earn” dropdown menu and select “Pools”.

   
   

2. Select Your Liquidity Pool: You will see a list of active pools, displaying their Total Value and current APR (Annual Percentage Rate). Scroll or use the search bar to find your desired pair. For this example, click on the KFI/KLV pool.

   
   

3. Initiate the Deposit: On the specific pool page, review the Total Token Locked and 24h Volume statistics. To proceed, click the orange “Add Liquidity” button in the top right corner.

   

4. Enter Deposit Amounts: On the “Create a position” page, you will input the amount of tokens you wish to supply. Type the amount into one of the token fields (e.g., entering 5 KFI). The system will automatically calculate and fill in the exact amount of the second token (e.g., KLV) needed to maintain the required 1:1 USD value ratio.

   

5. Review and Add Liquidity: Review the total Position Value and your estimated Pool Share. Once verified, click the orange “Add Liquidity” button at the bottom of the screen.

6. Sign the Transaction: Your connected Klever Extension will open automatically. Review the contract call details, including the Bandwidth and Kapp fees required for the transaction. Click “Sign” to authorize it.

   

7. Verify Your Position: Once the blockchain confirms the transaction, a green “Success: Liquidity added successfully” banner will appear at the top of your screen. You can now view your active deposit and earned APR under the “My Liquidity Positions” section at the bottom of the Pools page.

   

How to Remove Liquidity

Prerequisite: Ensure your Klever Extension is connected to the Bitcoin.me DEX.

1. Access Your Portfolio: On the top navigation bar of the Bitcoin.me DEX, click the “Portfolio” button to view a summary of your assets.

   

2. Locate Your Position: Scroll down the page to the Liquidity Positions section. Here, you will see a list of your active pools (e.g., KFI-KLV), their current value, and APR.

   

3. Open Position Options: Find the specific pool you want to withdraw from. Click the three-dot menu icon (⋮) located just to the right of the orange “Add Liquidity” button.

   

4. Select Edit Position: From the small dropdown menu that appears, click on “Edit position”.

   

5. Choose the Withdrawal Amount: On the “Edit position” page, you will be prompted to enter the amount of your position you want to close. To withdraw everything, click the “MAX” button. Alternatively, use the 25%, 50%, or 75% buttons to perform a partial withdrawal.

   

6. Review and Confirm: Review the breakdown under “You will get,” which shows the estimated amount of both tokens (e.g., KFI and KLV) returning to your wallet. Notice the disclaimer that you will also claim your energy rewards when closing the position. Once you are ready, click the orange “Edit position” button at the bottom.

   

7. Sign the Transaction: Your Klever Extension will automatically pop up with the contract call details. Carefully review the Kapp Fee and Bandwidth Fee required, then click the “Sign” button to execute the withdrawal.

Once the blockchain confirms the transaction, your tokens, along with any earned fees and rewards, will be successfully deposited back into your Klever wallet.

While providing liquidity is a great way to earn rewards, it is essential to be aware of the inherent risks associated with decentralized finance (DeFi) before participating:

• Impermanent Loss (IL): This is one of the most critical concepts for Liquidity Providers to understand. If the price of your deposited tokens changes significantly compared to when you first deposited them, you might end up with less total USD value upon withdrawal than if you had simply held the individual tokens in your wallet.

• Smart Contract Risks: While the smart contracts powering the Bitcoin.me DEX are built with security as a top priority, interacting with any DeFi protocol carries inherent risks. As a best practice, users should only provide liquidity with funds they are comfortable utilizing in Web3 environments.