Questions and Answers
What is the primary way liquidity providers (LPs) earn income in decentralized exchanges?
What do liquidity providers need to hold in a liquidity pool?
What type of fees do LPs earn from their contributions to decentralized exchanges?
Which of the following protocols is known for liquidity provisioning?
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Which of the following is NOT a method used by LPs to generate profits?
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Study Notes
Liquidity Providers and Decentralized Exchanges
- Liquidity providers (LPs) supply funds to decentralized exchanges (DEXs), specifically automated market makers (AMMs).
- LPs contribute liquidity by holding equal values of two different assets in a designated "liquidity pool."
Earnings and Rewards
- LPs earn fees generated from trading activities within the liquidity pool.
- The trading fees provided as rewards are proportional to the amount of liquidity each LP contributes.
Popular Protocols
- Pancakeswap and Uniswap are leading platforms for liquidity provisioning, allowing users to trade assets seamlessly while LPs earn fees.
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Description
Explore the role of liquidity providers (LPs) in decentralized exchanges (DEXs) like Pancakeswap and Uniswap. This quiz covers how LPs earn fees by contributing to liquidity pools and the mechanics of automated market makers (AMMs). Test your knowledge on liquidity provisioning and trading fees.
