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A short guide to understand the basics of becoming a liquidity provider on Symmetric.
Getting started with Symmetric isn’t easy, there is a lot to grasp and the unique UI can be a lot to take in. This small guide is intended for Symmetric beginners with an understanding of Decentralized Finance and Cryptocurrencies. It tries to answer recurring questions about how to get started with Symmetric and how it works or makes money for liquidity providers.
The easiest way to understand Symmetric is to see it as an exchange. Its main goal is to let users and other decentralized protocols exchange native tokens (HNY to xDAI for example) through it with low fees and low slippage. Unlike exchanges out there that match a buyer and a seller, the behavior of Symmetric is different, it uses liquidity pools like Balancer. To achieve this, Symmetric needs liquidity which rewards are dispensed to those who provide it.
Symmetric is non-custodial meaning the Symmetric developers do not have access to your tokens.
If you are new to Decentralized Finance, liquidity pools are a seemingly complicated concept to understand so I will do my best to help.
Liquidity pools are pools of tokens that sit in smart contracts. If you were to create a pool of DAI and USDC where 1 DAI = 1 USDC. You would have the same amount of tokens, let’s say 1,000 tokens (1,000 DAI and 1,000 USDC) in the pool.
If trader 1 comes and exchange 100 DAI for 100 USDC, you would then have 1,100 DAI and 900 USDC in the pool so the price would tilt slightly lower for USDC to encourage another trader to exchange USDC for DAI and average the pool back.
You can see those details for each pool and it is something you can take advantage of when depositing.
On the screenshot for the above pool, USDC is lower than wxDAI, as that gap widens it means you could sell it for a bit more tokens. The basic idea is that you incentivize traders to push the price back to what it should be (in this case, 1).
Every time someone makes a trade on Symmetric, liquidity providers (people who have deposited funds onto Symmetric) get a small fee split evenly between all providers, this is why you will see high APRs on days with high volume and high volatility.
It’s important to note that because fees are dependent on volume, daily APRs can often be quite low just like they can be very high.
When you go to the deposit page and deposit an asset in a pool (for instance one stable coin), it then gets split between each token in the pool. That’s something you have to keep in mind because if you were to deposit 1000 DAI in the wxDAI/wBTC/wETH pool (weighted @ 33% each), you would then get $333.33 of DAI, $333.33 of wBTC and $333.33 of WETH. Those values change constantly as people trade and arb the price of the coins in the pool.
Besides the deposit bonus explained below, it doesn’t matter. Your tokens will get split into the pool and it doesn’t affect your returns so you can deposit one, some or all the coins into the pool without worrying about it affecting your returns.
When one asset in the pool is quite low and your plan was to join the wxDAI/wBTC/wETH , you would ideally deposit the asset that is currently the lowest percentage into it. You would get an instant bonus for depositing that token into the pool.
The main reason for this is that asset (wxDAI for example) might currently slightly more expensive so if you went to a centralized exchange you might sell it for $1.007 instead of $1. The deposit bonus reflects that.
The other reason behind this is that the pools are always trying to balance themselves and go back to equal parts so depositing the coin with the lowest share will get you a deposit bonus and that also applies to other pools.
When you withdraw, the same principle applies (but reversed). If you withdraw the coin with the biggest share, you would get a bonus but you still choose what coin you want to withdraw.
Arbitrage is the simultaneous buying and selling of, in our case, a token to make a profit. Because cryptocurrency markets can often lack liquidity, there are often opportunities for traders to take advantage of price discrepancies to make a profit which can be helped by protocols like Symmetric.
All pools on Symmetric are “incentivized”. That means that on top of trading fees, we will give rewards (paid in SYMM) to people providing liquidity to the pools with their coins.
For example: say the wxDAI/wBTC/wETH pool currently earns another 100% apy paid in SYMM per year, there are three variables that can make this change:
- The SYMM distributed is based on the number of people proving liquidity which means your share of rewards gets lower if more people start adding liquidity.
- The price of SYMM going up or down
- The size of weekly rewards could also be lowered as Symmetric reevaluates the rewards and inflation of their token
SYMM token is a governance and utility token for Symmetric
Security audits don’t eliminate risks completely so it’s still possible a vulnerability can be found in Symmetric smart contracts. High returns never come without risks.
On top of the Symmetric smart contracts themselves, whenever you join a pool, you’re also accepting systemic risks from the coins in the pool. For example, if you do not want to have exposure to USDT, then you cannot join a pool that has it.
It’s important to choose a pool that matches your risk tolerance.