Can you generate passive income by providing liquidity? – PancakeSwap (CAKE), Uniswap (UNI) and Calyx Network (CLX)

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We’ve all heard of cryptocurrency staking to generate passive income, but how about becoming a liquidity provider? If you only trade on centralized exchanges you might not be familiar with the word as this form of passive income can only be done on decentralized exchanges such as PancakeSwap (CAKE), UniSwap (UNI) and the recently launched ones Calyx Network (CLX).

What is a liquidity provider?

A liquidity provider is a user who adds cryptocurrency assets to a liquidity pool to support trading on the platform while generating passive income. Decentralized exchanges using automated market maker based systems use liquidity pools to enable trading of illiquid trading pairs with low deviation.

Trading illiquid pairs on order book based exchanges can result in significant slippage and the inability to execute trades. The benefit of being a liquidity provider is that they can execute trades at any time provided their liquidity pools are large enough. Liquidity providers are known as trading facilitators and are compensated via transaction fees for the trades they facilitate.

PancakeSwap (cake)

If you contribute your token to a liquidity pool, you will be rewarded with Liquidity Provider (LP) tokens as well as a portion of the fees. Your share of the PancakeSwap (CAKE) liquidity pool is represented by the number of LP tokens you receive. Additionally, you can withdraw your liquidity at any time to redeem your funds.

When investors use your liquidity pool, you are compensated for providing liquidity. When a trader uses PancakeSwap (CAKE), they pay a 0.25% fee, of which 0.17% goes into the swap pair’s liquidity pool.

Uniswap (UNI)

Uniswap (UNI) V3 is a major upgrade from Uniswap (UNI) V2. Unlike Uniswap (UNI) V2, which requires all users to provide liquidity across the entire price curve from 0 to infinity, Uniswap (UNI) V3 allows LPs to concentrate capital in the price range where they believe the maximum profit will be made becomes.

Swap fees are calculated as a percentage of the total swap volume. Fees incurred during each Uniswap (UNI) swap are split among the LP providers based on your contribution to the LP. Since these fees are automatically added to the LP, your total personal LP contribution will increase as fees are incurred.

Calyx Network (CLX)

Calyx Network (CLX) is new to the crypto scene and just recently started its pre-sale phase. Calyx (CLX) is a fully decentralized trading platform that has piqued the curiosity of the crypto community. Experts believe that the price of CLX could rise ahead of its launch due to its promising utility.

Calyx (CLX) will allow liquidity providers to build pools (on any blockchain network) or contribute liquidity to existing pools under the protocol. As a result, the capital efficiency of LPs would improve and users would pay less slippage.

Calyx (CLX) aggregates liquidity from numerous sources operating on various blockchain networks and pools it in one place, resulting in lower exchange fees and faster trades without leaving your wallet. As a result, atomic token swaps and native tokens from one project would be usable across a variety of ecosystems, platforms, and applications.

Calyx Token (CLX) will be transferred prior to its release to ensure the long-term stability of the project. While this is obviously a positive result, it means that pre-sale investors will not be able to access their tokens for an extended period of time after the pre-sale ends.

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