SundaeSwap Yield Farming to Earn More Sundae Tokens
January 17, 2022
You can earn more SUNDAE tokens by participating in SundaeSwap Yield Farming on their Decentralised Exchange. Earning yield on SundaeSwap can be done in a few steps but we need to understand all the concepts and how it will work on the SundaeSwap Decentralised Exchange.
All Decentralised Exchanges (DEX) that work with an Automated Market Maker (AMM) model needs liquidity in the DEX. With that constant supply of tokens available, the exchange can make the trades possible.
How Do Liquidity Pools Work?
Liquidy pools work against two traded pairs being used as assets for a particular token swap. Liquidity providers add these token pairs at an even one to one ratio.
For example, a user may add in a trading pair of
WMT and ADA (WMT/ADA)
A user may provide 100 WMT and 10 ADA.
The liquidity pool will then use a constant product formula to track the ratio of the two trading pairs.
This formula is usually:
x * y = k
100 WMT * 10 ADA = 1000.
As trading occurs on the pool, this ratio of tokens will constantly change as the amount and value of each token goes up and down since traders will be swapping tokens.
If people buy all of the WMT, the amount of ADA in the liquidity pool goes up in order to keep that constant product formula.
5 WMT * 200 ADA = 1000
The difference in the Liquidity pool compared to simply holding the two tokens is known as impermanent loss. If the liquidity provider was to withdraw the assets, they will realise that loss.
What Yield Rewards Will You Get from SundaeSwap Yield Farming?
Over the initial launch period of about 5-6 months, there will be 500,000 Sundae tokens distributed for liquidity providers. Anyone that is providing liquidity in qualified pools will be eligible to earn the extra yield.
There are risks when it comes to yield farming. Those that are familiar with the Decentralised Finance space on other chains will know there are constant hacks and vulnerabilities draining assets from liquidity pools.
You could lose your seed phrase or get hacked
The token prices are volatile and incur an impermanent loss
The devs can take all the funds and
Regulation and stamp out all DEXes.
To mitigate against these risks there are some important steps you can take.
Use a hardware wallet and store your seed phrase securely. Please listen to the security podcast episode I've done on general crypto and wallet security to ensure you and your assets are safe.
Understand the risks of the volatile markets.
Work with projects with trusted people in the crypto ecosystems. Ensure you know who the development teams are. See what partnerships have formed and who they are working with.
Keep an eye out for regulations that may affect your positions. If regulation comes into play around decentralised exchanges that isn't favourable, be ready to act accordingly.
These are all suggestions on what you can do to help lower and mitigate risks in participating in decentralised finance. Please ensure you do your own research before participating.
SundaeSwap has also provided documentation on the risk and rewards of using their DEX.
How to Provide Liquidity to SundaeSwap Yield Farming
Providing Liquidity to SundaeSwap
Connect Your Wallet
Click on CONNECT to initiate the wallet connection on the website. Click Accept the terms and choose your wallet to connect. In this tutorial, we will be using the Nami wallet. Click Nami and load your wallet
It is important to note that under SETTINGS in Nami, you have a collateral set. This is to ensure your wallet isn't drained in a very rare failed transaction.
Purchase the Token Required for the Trading Pair
If you don't have enough of the token pair, you will need to purchase it. For example, if you only have ADA, you will need an equal amount in terms of the value of token A and token B. If you only have ADA and you want to provide WMT/ADA trading pair, you will need to have 50% ADA and 50% WMT when providing the liquidity.
Click on Swap Type in ADA to swap your ADA for your desired token. Type in the token you wish to swap for. Enter in the amount you want. Keep in mind you need ADA and the new token when providing liquidity.
Create the Liquidity Pool or Add to an Existing Pool
If a liquidity pool that you want to add to doesn't exist, you can create one, but if one already exists, you can add to the existing liquidity pool.
🚨 If you're adding liquidity for yield farming, its is important to add it to one of the qualified pools 🚨
Click Add Liquidity
Enter in the amount you want to add, you will have to add an amount of equivalent value. Click PROVIDE LIQUIDITY Sign the transaction
Check Your Setup
Once your transaction has been submitted and a Scooper has picked it up to process, the order will be submitted back to the blockchain and your Liquidity token provided back to you.
Check-in your Nami Wallet to ensure it is there. Click on LIQUIDITY from the side menu of the SundaeSwap dashboard and you will also see the liquidity pools that you have provided liquidity towards.
Congratulations, you have provided liquidity and will earn fees along with extra yield if you have provided it to a qualified pool.
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