How to Make Passive Income in Crypto – Best Liquidity Providers with Calyx Network (CLX) & PancakeSwap (CAKE), UniSwap (UNI)
We’ve all heard about staking on crypto as a form of passive income, but what about becoming a liquidity provider? It won’t be a familiar term if you only stick to centralised exchanges, as this form of passive income can only be earnt on decentralised exchanges such as PancakeSwap (CAKE), UniSwap (UNI) and the latest Calyx Network (CLX), which has just entered presale.
What Does Being a Liquidity Provider Involve?
A liquidity provider is a user who deposits crypto assets into a liquidity pool in order to facilitate trading on the platform and earn passive income on their investment.
Decentralised exchanges that use automated market maker-based systems to allow trading of illiquid trading pairs with limited slippage rely on liquidity pools. Instead of using traditional order book-based trading systems, such exchanges allow trades to be executed using funds held for each asset in each trading pair.
While trading illiquid trading pairs on order book-based exchanges can result in significant slippage and the inability to execute trades, liquidity providers have the advantage of always being able to execute trades as long as the liquidity pools are large enough. As a result, liquidity providers are regarded as trade facilitators and are compensated through transaction fees for the trades that they facilitate.
The percentage of the liquidity pool that liquidity providers provide determines how much they are paid. They are usually required to fund two different assets when funding the pool in order for traders to switch from one to the other by trading them in pairs.
Providing Liquidity on PancakeSwap (CAKE)
You will receive Liquidity Provider (LP) tokens and a share of the fees when you add your token to a Liquidity Pool. Your share of the PancakeSwap (CAKE) Liquidity Pool is represented by the number of LP tokens you receive. You can also withdraw your liquidity at any time to redeem your funds.
When people use your liquidity pool, you get paid in the form of trading fees for providing liquidity. When a trader uses PancakeSwap (CAKE), they pay a 0.25% fee, of which 0.17% goes to the Liquidity Pool of the swap pair they traded on.
You can also use your LP tokens to gain yield on the CAKE Farms while still earning your 0.17% trading fee reward, making being a liquidity provider on PancakeSwap (CAKE) even more worthwhile.
Providing Liquidity on Uniswap (UNI)
LPs can concentrate their capital within custom price ranges in Uniswap (UNI) V3, providing more liquidity at desired prices.
Uniswap (UNI) V3 allows LPs to concentrate capital in the price range they believe will generate the highest return, whereas Uniswap (UNI) V2 required all users to provide liquidity across the entire price curve from 0 to infinity.
The swapping fees are 0.3% of the total volume swapped. The fees accumulated during each swap through Uniswap (UNI) are shared among LP providers based on the proportion you contributed to the LP. These fees are automatically deposited into the LP, so your total personal LP contribution continues to rise as fees accumulate.
Providing Liquidity with Calyx Network (CLX)
Calyx Network (CLX) is yet to be released, having gone into presale only very recently. However, it’s been generating excitement in the crypto community because Calyx (CLX) is a fully decentralised, community-driven and permissionless exchange platform. Analysts are predicting the price of CLX to surge significantly before its launch, based on its prior activity.
Calyx (CLX) will enable LP creators to create a pool (on any blockchain network of their choice) or add liquidity to existing pools in the protocol. This would result in LPs having a higher capital efficiency and users paying less slippage.
Because Calyx (CLX) is permissionless, anyone, such as traders or token teams, can become a Liquidity Provider or create a pool by donating an equivalent amount of underlying tokens in exchange for LP tokens.
Through this, the Liquidity Providers will be able to earn a percentage of the fees generated by the trades executed by the pool’s traders. LPs will be able to earn fees based on the amount of liquidity they contribute to the pool on Calyx Network (CLX).
Furthermore, for higher returns, trading fees will be automatically adjusted based on the on-chain market conditions. As a result, if the market is volatile, the fees are automatically increased to the desired level for maximum returns. If the market is less volatile, on the other hand, the fees will be reduced to encourage more trading activity and total fees collection.
Calyx (CLX) will gather liquidity from various sources running on top of various blockchain networks and bring it together under a single roof, resulting in lower switching costs and faster trades without leaving the wallet. Atomic token swaps and a project’s native tokens would be able to gain utility across a wide range of ecosystems, platforms, and applications as a result of this.