Investing in a liquidity pool during a bear market can be a very good strategy. Before you invest it is important to understand this market properly. Learn about it and understand how you can get capital growth and how you can build passive income.

Understanding these things is very important because this is a high risk investment opportunity where you can get high risk and high reward. However, if you do it properly and invest in a liquidity pool while keeping market conditions in mind, it can give you good benefits.

Before I explain liquidity pools on Magi Network, how you can invest in them, which pair you can add and what profit you can get, I think it is important to give some basic information about liquidity pools for new users.

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WHAT IS LP?

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A liquidity pool is an investment place where you provide liquidity in a pair of two tokens. For example, let's take HIVE and HBD. If I want to invest in HIVE and HBD, I will invest in both tokens in an equal ratio through the liquidity pool.

When I invest, I provide liquidity for trading. Now, whenever traders make trades, I receive a share of the trading or transaction fees because I provided liquidity. This becomes my passive income.

The amount varies depending on how much trading happens in that token pair. If trading volume is high, I get a higher APR. In TribalDex, I usually saw APRs around 12% to 24% in liquidity pools.

There are two types of losses in liquidity poolsn that is impermanent loss and capital loss. It is very important to understand both.

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Impermanent Loss

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When you invest in a HIVE-HBD pool and the price of HIVE keeps going down, some of your HBD is automatically converted into HIVE. As HIVE drops, more of your HBD is used to buy HIVE. This means money is moving from one asset to another. Because of this, your capital value may decrease slightly.

As long as you do not withdraw or book the loss, this is called impermanent loss. In simple words, your capital has temporarily decreased. But if you are a long term holder and believe that HIVE will perform better in the future, you can let it continue. When HIVE recovers, the HIVE bought at lower prices will be converted back into HBD at higher prices, and you can gain capital profit.

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Capital Loss

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Capital loss happens when both HIVE and HBD go down at the same time. For example, if HIVE falls by 10% and HBD also falls by 10%, your total investment value will decrease. If you withdraw at that time, the loss becomes real. But if you do not withdraw, and the projects recover in the long term, you may return to profit.

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Profit in Liquidity Pools

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There can be two types of profit.

If HIVE becomes bullish, some of your HIVE is gradually converted into HBD. In this case, the profit from HIVE is being moved into a stablecoin.

The second is full capital gain. This happens when both HIVE and HBD move upward together. In this situation they are not converting much into each other but your overall investment value increases.

Besides these gains, you also continue earning passive income from trading fees. As mentioned earlier, this can be around 12% to 24% APR, depending on trading activity.

I reviewed the liquidity pool feature on Maya Network for the first time to see how it works and what opportunities it provides.

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LP VIA MAGI NETWORK

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First, open Magi Network. After logging in with your Hive account or Hive Keychain, you will see the Pools option on the interface. Click on Pools and you will see different trading pairs.

I decided to check the HBD:HIVE pair. I clicked on it and selected Add Liquidity. I entered 100 HBD, and the system showed the amount of HIVE required for the pair. After adding liquidity you can see yourself listed as a liquidity provider.

Your username, the amount of HBD and HIVE you added and the LP tokens you received will all be displayed. These LP tokens represent your share in the pool and your future rewards.

Overall, adding liquidity through MaII Network is a simple process. In my opinion, it is also quite strong from a security perspective. However, you should always do your own research and fully understand the risks before investing in any market.

I hope this information helped you understand liquidity pools better.

I hope you guys will like this post and is interesting as well. If you find it informative then dont forget to give me a support. Share you reviews in the comment section below. Thank you all for your time reading the content.

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