Liquidity Provider FAQ
Common questions about providing concentrated liquidity on Alcor Swap.
What is a concentrated-liquidity AMM?
An AMM in which each liquidity provider chooses the price range their liquidity covers, instead of spreading it over all prices. Within that range the same capital gives deeper liquidity, so traders get less slippage and LPs earn more fees per dollar. See Introduction.
How do I earn as a liquidity provider?
A position earns a share of the swap fees of its pool while the price is inside its range, in proportion to its liquidity. If the pool has farms, staking the position earns farm rewards on top.
Do I need to deposit equal values of both tokens?
No. The ratio depends on where the current price is within your range. A range centred on the current price takes roughly equal values. A range above or below the current price takes only one token. The app calculates the second amount for you.
Which fee tier should I choose?
The fee tier belongs to the pool, not to your position: every swap through a 0.3% pool pays 0.3%, wherever the price is. Use the tier where the pair's trading happens. The new position form shows each tier's share of the pair's TVL. As a rule of thumb, 0.01% suits stable pairs, 0.05% high-volume pairs, 0.3% most pairs and 1% exotic or volatile pairs.
Why choose a narrow range?
A narrow range earns more fees per dollar while the price stays inside it. It also leaves the range more easily, and then earns nothing until the price returns. A wide range earns less per dollar but stays active longer.
What happens if the price leaves my range?
The position ends up holding 100% of one token: the one that lost value relative to the other. It stops earning fees until the price comes back into the range. You can leave it, or remove the liquidity and open a new position around the current price.
Can I change the range of a position?
No. Remove the liquidity and open a new position with the new range.
What is impermanent loss?
As the price moves, a position sells the rising token and buys the falling one. Compared with simply holding the two tokens, this can leave you with less value. The loss becomes permanent when you withdraw. A narrower range concentrates this effect as well as the fees.
Can I withdraw at any time?
Yes, unless you locked the position. Removing liquidity also collects the position's fees.
A token's issuer may have full control of the token contract. Withdrawals can fail because of the token contract, and a token can be used for a rug pull or other fraud. Anyone can create a token and a pool for it, so research a token before you provide liquidity for it.