Everything you need to know about using stablecoins in DeFi | Part 4: Liquidity Pools and Yield Farming – Stable

Welcome to part 4 of Stably’s series on using stablecoins in DeFi. In this article, we talk about how to use stablecoins to provide liquidity to liquidity pools and how to use the LP tokens mined by providing liquidity to increase yields through yield farming.

Yield farming is the practice of people using their tokens in a variety of ways to maximize their earnings. If you’re looking to optimize your returns, these strategies offer some of the highest returns – but also the highest risks – available in DeFi.

In the final article in this series, we will talk about providing liquidity to liquidity pools in exchange for Liquidity Provider (LP) tokens, which can be used to generate further returns.

Liquidity pools allow users to provide funds that will be used to provide liquidity to trading pairs on Automated Market Makers (AMMs). By providing liquidity to AMMs, LPs earn a share of the trading fees that users pay when trading one token for another.

AMMs are a type of decentralized exchange that allows users to exchange tokens across liquidity pools instead of trading them peer-to-peer.

As with decentralized lending platforms, different liquidity pools and automated market makers are hosted on different networks. This means you need to transfer your tokens to a wallet with access to the appropriate network in order to use these dApps.

In this walkthrough, we will show how to provide liquidity to the VET/VeUSD trading pair on Vexchange. Vexchange is an automated market maker hosted on the VeChain blockchain that distributes 0.3% of its trading volume to liquidity providers.

To provide liquidity on Vexchange you need both VeUSD and VET. VeUSD can be sourced through Stable Prime and quickly exchanged for VET through Vexchange.

When you provide liquidity for the VET/VeUSD trading pair, you receive a portion of the fees traders pay to exchange these tokens on Vexchange. The amount of fees received is calculated as a percentage of the total liquidity pool.

To start, go to https://vexchange.io/pool. Click Join a Pool, scroll to the bottom of the listed options and click Join to select the VET/VeUSD trading pair.

To add liquidity, connect your wallet and enter the amount of VET and VeUSD you wish to deposit. Vexchange doesn’t require users to deposit tokens of the same value, but it’s generally a good idea to do so.

If tokens are deposited in values ​​that don’t match the portion of the pool they represent, either the pool will be rebalanced or someone will arbitrate the difference. In any case, this will result in a reduced share in the pool.

After entering the number of tokens to be deposited, Vexchange will display the percentage of trading fees that the LP tokens will receive relative to the current size of the pool.

When providing liquidity, it is important to be aware of the risk of temporary loss.

For a refresher on what a temporary loss is and how to minimize risk using stablecoins, please read the temporary loss section in Part 1 of this series.

Use LP token

In addition to earning a portion of trading fees, LP tokens can also be used to provide liquidity to trading pairs.

After obtaining VeUSD-VET LP tokens, return to the Vexchange home page and click on the Farm tab to access LP token liquidity pools.

Scroll down to VeUSD-VET pair and click “Connect wallet” to connect your wallet.

Once your wallet is connected, repeat the same process as before: enter the number of tokens you want to deposit and make sure you deposit an appropriate value of tokens.

At 14.86% APR Additionally To Because of the trading fees generated by holding LP tokens, yield farming can not only outperform high-yield savings accounts, but the average return of 10.50% per year achieved by the S&P 500 from 1957 through 2001. However, it involves risks and returns vary over time. Investors should exercise caution before investing and be fully aware of all the risks involved.

Check out Stably Prime to easily buy stablecoins at the lowest fees in the industry.

Go to https://prime.stable.io/ To open an account and get the stablecoins you need to start making money with DeFi.

Need a refresher? Check out Part 1 to learn more about stablecoins and how to earn money, Part 2 for a walkthrough of getting and transferring stablecoins with Stably Prime and Part 3 for our guide to decentralized lending.

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