Liquidity Pools - A Practical Guide

1. When to Enter/Exit Pools:

  • Enter when:

   - You have strong conviction in both tokens

   - Trading volume is consistently high

   - Price ratio between tokens is relatively stable

   - You understand the protocol's security track record

  • Exit when:

   - High volatility is expected (market turbulence, major announcements)

   - Trading volume is declining

   - One token shows weakness or red flags

   - Better opportunities arise elsewhere

2. Non-incentivized Pools:

  • Can be profitable if:

   - Natural trading volume is high

   - Trading fees are sufficient (usually 0.2-1%)

   - Token pair is popular (like major DEX pairs)

  • Examples of successful non-incentivized pools:

   - ETH/USDC on Uniswap

   - XLM/USDC on Stellar DEX

3. Stablecoin Pools:

  • Generally considered safer options because:

   - Minimal impermanent loss risk

   - More predictable returns

   - Good for capital preservation

  • Popular stablecoin pairs:

   - USDC/USDT

   - USDC/DAI

   - BUSD/USDT

  • Typical APY: 2-10% from fees alone

Pro Tips:

- Always calculate your expected returns vs. potential IL before entering

- Monitor pool TVL (Total Value Locked) trends

- Check historical volume data

- Consider gas fees for entry/exit on your chosen network