What Does it Mean to Provide Liquidity?
As a liquidity provider, you contribute an equivalent value of tokens to a liquidity pool, ensuring other users can freely trade their tokens. Liquidity providers earn a percentage of the trading fees in proportion to their contribution to the pool while their tokens remain in the pool.
Be aware that earning a profit through providing liquidity isn't guaranteed.
You may face what's known as impermanent loss, a risk that arises
from fluctuations in the value of the deposited tokens.
How to Provide Liquidity on Katana
To provide liquidity on Katana, you will need to add a token pair to the pool. Below you will find instructions to start providing liquidity to the Katana liquidity pool:
Katana V2 vs Katana V3
If you want to provide liquidity on Katana, you will notice that there are two type of Liquidity Pools: V2 and V3.
Katana V2 is a previous version of the Katana smart contract, which is still operational. Katana V3 is the latest version, which introduces concentrated liquidity, fee tiers, and improved oracles. When creating a liquidity pool, you can choose to use either Katana V2 or Katana V3. We will explain how to provide liquidity using both versions.
Katana V2
Step 1. Connect Ronin Wallet
Visit the Liquidity Pool page in the Ronin Explorer and connect your Ronin wallet (if this is your first time using the site, you will be prompted to read and agree to the Terms of Service).
Step 2. Select Liquidity Pair
You will see a list of available pools, each consisting of two tokens. To begin adding liquidity to a pool, you will need to search from the available liquidity pool pair options, then select it. You can also search for your preferred option by the token's symbol in the search bar. There are a lot of pools to choose from: WETH/RON, AXS/RON, SLP/RON, USDC/RON, etc.
Once you have selected the token pair from the list, you will be directed to an overview of that Liquidity pool. There you will be able to see information such as the Total Value Locked, Volume, Farm rewards, APR and Fees. From there, click on "+ Add liquidity".
There you will see an option to Add liquidity.
To better understand the interface above, we define the parts below:
- MY LIQUIDITY: the amount of LP tokens you have in the pool and the ERC-20 tokens you provided to the liquidity. The values are either zero or "-" if you have not provided any liquidity yet.
- MY LP FEE EARNED: the fees earned from providing liquidity to this pool.
- FARM REWARDS: after providing liquidity, you will be able to stake the LP tokens that you receive and use them to receive additional rewards from people incentivizing that pool.
Step 3. Add Liquidity Pair
After selecting the WETH/RON pool, you will need to specify the exact amounts of the token pair that you want to add. You can either put the amount in manually or click Max to deposit the maximum amount of tokens you have in your wallet. Whatever value you put on either token, it will automatically input the equivalent value of its corresponding pair, as the amounts should always be even.
For example, if you choose to add 100 RON to the pool, the corresponding amount of WETH will be 0.0114887 at the exchange rate of 1 RON = 0.000114887 WETH. Once you have confirmed the amounts, you can click the Add button to proceed.
Note: If your wallet is interacting with the tokens for the first time,
you will need to approve them first before you can proceed with the actual transaction.
Click Approve, then confirm the transaction in your Ronin Wallet.
After authorizing the tokens, you can proceed with the Add Liquidity operation.
Step 4. Review & Confirm the Transaction
Once you have reviewed the details of your liquidity contribution and everything checks out, click Confirm add liquidity to finalize and confirm the transaction in your Ronin Wallet.
Once you have completed signing the transaction in your Ronin wallet, Katana will display a confirmation pop-up similar to the one below:
You may click View on explorer to see the detailed information about the transaction.
Once you click on Close, the My position panel will now be updated with your latest contribution:
- The amount of ERC-20 tokens you provided as liquidity.
- The amount of LP tokens received in return.
Congratulations, you are now a liquidity provider on Katana and will start earning fees from the pool's transactions. If the pool supports farming, you can also stake your LP tokens to farm RON. For more information, see the LP Staking article.
Katana V3
Step 1. Connect Ronin Wallet
Visit the Liquidity Pool page in the Ronin Explorer and connect your Ronin wallet (if this is your first time using the site, you will be prompted to read and agree to the Terms of Service).
Step 2. Select Liquidity Pair
You will see a list of available pools, each consisting of two tokens. To begin adding liquidity to a pool, you will need to search from the available liquidity pool pair options then select it. You can also search for your preferred option by the token's symbol in the search bar. There are a lot of pools to choose from: WETH/RON, AXS/RON, SLP/RON, USDC/RON, etc.
Once you have selected the token pair from the list, you will be directed to an overview of that Liquidity pool. There you will be able to see information such as the Total Value Locked, Volume, Farm rewards, APR, Fees and Depth. From there, click on "+ Create new position".
There you will see the different features that are implemented on Katana V3 compared to the previous version. First, the Fee tiers. There are multiple fee tiers to accommodate different types of trading pairs. This flexibility enables LPs to choose fee structures that best suit their risk/reward preferences and market conditions. There is a description for each Fee tier. Consider the volatility of the token you're pooling and choose a Fee tier.
Then, the Price range. This is the concentrated liquidity feature. It allows you to allocate your liquidity within a specific price range. This way, LPs can improve the capital efficiency of the pool. Do consider that if you specify a price range, you should regularly monitor the market prices of the tokens in that pool, since if the price moves outside the range you've set, your liquidity will no longer be active, and you will not earn fees. You can instead do a Full range (as in Katana V2).
Step 3. Add Liquidity Pair
After selecting the the Fee tier and Price range, you will need to specify the exact amounts of the token pair that you want to add. You can either put the amount in manually or click Max to deposit the maximum amount of tokens you have in your wallet. Whatever value you put on either token, it will automatically input the equivalent value of its corresponding pair as the amounts should always be even.
Note: If your wallet is interacting with the tokens for the first time,
you will need to approve them first before you can proceed with the actual transaction.
Click Approve, then confirm the transaction in your Ronin Wallet.
After authorizing the tokens, you can proceed with the Add Liquidity operation.
Step 4. Review & Confirm the Transaction
Once you have reviewed the details of your liquidity contribution and everything checks out, click "Add Liquidity" to finalize and confirm the transaction in your Ronin Wallet.
After you sign the transaction, Katana will confirm that you have added liquidity successfully.
Congratulations, now you have provided liquidity to that Liquidity pool.
How to View Positions on Katana
To see all the pools you contributed to and the fees earned, open the Liquidity Pool page, then select My positions.
Once in the My Positions page, you will see the following information:
- The pools to which you contributed
- The APR (annual percentage rate) for each pool
- Your position in each pool
- The fees you earned from each pool
- Your claimable rewards from farming (if the pool supports it)
To view more details, such as the amount of LP tokens and the pool's performance over time, select each pool.
How to Remove Liquidity from Katana
Removing pool tokens converts your position back into underlying tokens at the current rate, proportional to your share of the pool. Accrued fees are included in the amounts you receive.
NOTE: If you have staked your LP tokens for farming, you will need to un-stake it first before you are able to remove the liquidity from Katana. Learn how to un-stake here.
Step 1. Connect Ronin Wallet
Visit the My Positions tab in the Liquidity Pool page in the Ronin Explorer and Connect Wallet.
Step 2. Select Pool to Withdraw From
After connecting your Ronin wallet, click the pool you want to withdraw from.
Select the Remove liquidity panel.
Step 3. Enter Amount to Remove
Enter the amount of LP tokens you want to withdraw. You can also click Max to withdraw all your LP tokens. To proceed, click Remove.
Step 4. Review & Confirm the Transaction
Review the details of your intended withdrawal and if everything checks out, click Confirm remove liquidity. Sign the transaction with your Ronin Wallet to complete.
Once the process has been successful, Katana will display a confirmation pop-up like the one below:
Close it or click View on explorer to see the detailed information about the transaction.
The My position panel is now updated with your latest position after removing liquidity:
You have now successfully removed your liquidity by removing your LP tokens.
How to Create New Liquidity Pool
If you're a token creator, you can launch your own ERC20 token on Katana and create a liquidity pool with it. This is a unique opportunity to bootstrap liquidity for your tokens and incentivize trading. By creating a pool, you provide a platform for users to trade your token with other tokens, increasing its utility and value.
During an initial whitelisting period, only you as the owner of the Ronin address that deployed the ERC20 token can create liquidity pools with your token. After the whitelisting period ends, users can contribute liquidity to your pool or create their own pools with your token.
After creating a liquidity pool, you can create a farm to encourage users to contribute liquidity to your pool.
Step 1. Connect Ronin Wallet
Visit the My Positions tab in the Liquidity Pool page in the Ronin Explorer and Connect Wallet.
Step 2. Select Create new pool
After connecting Ronin Wallet, click on Create new pool button.
Step 3. Select token
Select both the tokens you wish to create a new pool from.
Once you click on Select token, a pop-up will appear where you can choose the token you wish to add to the liquidity pool.
Step 4. Change the transaction settings
On the upper right-hand side are the transaction settings where you can change the maximum slippage and the transaction deadline. Max. slippage is the highest acceptable percentage difference between the expected and actual execution price of a transaction, protecting traders from significant price changes. Transaction deadline is the time limit within which a trade must be executed. If either the maximum slippage or the transaction deadline is not met, the transaction will revert.
Note: In the interface settings, toggling Expert mode will turn off the confirm transaction prompt and allow high slippage trades, which can often result in bad rates and lost funds.
Step 5. Approve creating new pool
Double check the tokens and the amount of tokens for the new pool before clicking on the Approve button.
Once the process has been successful, Katana will display a confirmation pop-up like the one below:
Close it or click View on explorer to see the detailed information about the transaction.