Liquidity Pools

Liquidity pools (LP) provide further options for farmers. These are a slightly more complex form of investing, and provide both more opportunities for growth and higher risk.

To create LP and get LP tokens, users will take two assets and add them to the larger pool of liquidity that underlies every Automated Market Maker (AMM). AMMs such as Quickswap on the Polygon Chain, Pangolin on the Avalanche Chain, or PancakeSwap on the Binance Smart Chain provide anyone the chance to exchange their tokens by using the liquidity pools provided by teams and investors.

Liquidity pools accept and maintain fixed value ratios of assets, typically 50-50 but other ratios such as 30-70, 20-80, or more complex multiasset pools at any ratio the designer wishes. Investors do not get to choose the ratio at which they invest; this is fixed by the pool at the time of its creation.

AutoMatic LP pools come in a variety of options and all autocompound rewards. Rewards come in two types: the specific reward from the pool (such as more LP, Quick, or AUMI) and AUMI. LP rewards and specific token rewards are available immediately, but AUMI rewards are placed into The Vault. The Vault is described in the previous section.

Impermanent Loss

Impermanent loss is a risk carried in LP pools. The short version is that if one part of a pair drastically changes value relative to the other parts, an investor may experience higher loss or lower gains on the assets held. This loss is not locked in unless an investor breaks the liquidity pair in the midst of the volatile period. To balance the larger risk in these kinds of farms, investors are rewarded in both higher APR and a portion of the transaction fees on the assets in the pair. The goal of any investor is a return that exceeds any impermanent loss as well as exceeding the returns available on single asset farms or simply holding the underlying assets. AutoMatic can help with this through continuous reinvestment of rewards and optimal yields based on this approach.