We had a few questions regarding Liquidity Pools (LP).
Please read these two articles from Ledger for some fundamentals:
Supply & Demand – Take a moment to consider the supply and demand for $RAD. Information is provided on the $RAD tokens page regarding how $RAD is distributed and returned to Cardania. Buyers should be aware that the price of $RAD will go down during times when more $RAD is sold than purchased on the open market. Conversely, $RAD prices tend to go up when there is high demand and more buying $RAD than selling it.
Short Term – $RAD LP’s are rather small compared to many other tokens so large buys and sells tend to have large price impacts. Buyers and sellers should anticipate high volatility.
Impermanent Loss – If you provide ADA-RAD liquidity into the Liquidity Pool of a DEX with the goal of increasing your ADA holding, you should consider “Impermanent Loss” as a risk. If more RAD is sold than is bought (over the period you intend to provide liquidity), then your overall ADA holdings will diminish. However there are trading fees (APR) that could offset this scenario. Do your own research and always consult a licensed financial advisor before engaging with decentralized exchange protocols.
