Providing Liquidity

Step-by-step guide to providing liquidity on DI Network, from choosing pools to managing your positions effectively.

Getting Started

Step 1: Choose Your Pool

Select from available liquidity pools:

• DI/ETH: Highest rewards, moderate risk

• DI/USDC: Balanced risk/reward

• DUSD/USDC: Lowest risk, stable returns

• DI/DUSD: Protocol synergy benefits

Step 2: Prepare Your Assets

Ensure you have both tokens in the pair:

For DI/ETH Pool:
- Equal USD value of DI and ETH
- Example: $1000 DI + $1000 ETH
- Plus ETH for gas fees

Step 3: Connect Wallet

1. Visit DI Network liquidity interface

2. Connect your wallet (MetaMask, WalletConnect)

3. Ensure you're on the correct network

4. Verify your token balances

Adding Liquidity Process

Single-Sided Deposits

Add one token and let the protocol balance:

1. Select "Add Liquidity"
2. Choose your pool (e.g., DI/ETH)
3. Enter amount of one token
4. Protocol calculates required amount of other token
5. Approve both token spending
6. Confirm liquidity addition

Balanced Deposits

Add both tokens in correct ratio:

Current Pool Ratio: 1 ETH = 4000 DI
Your Deposit: 1 ETH + 4000 DI
LP Tokens Received: Based on pool share

Transaction Steps

1. Approve Tokens: Allow contract to spend your tokens

2. Add Liquidity: Execute the liquidity addition

3. Receive LP Tokens: Get proof of your pool share

4. Stake LP Tokens: Stake for additional rewards (optional)

Pool Selection Strategy

Risk Assessment

Pool	Impermanent Loss Risk	Reward Potential	Volatility
DI/ETH	High	Very High	High
DI/USDC	Medium	High	Medium
DUSD/USDC	Very Low	Low-Medium	Very Low
DI/DUSD	Medium	High	Medium

Reward Comparison

Current APY Breakdown (Example):

DI/ETH Pool:
- Trading Fees: 12%
- Liquidity Mining: 45%
- Total APY: 57%

DI/USDC Pool:
- Trading Fees: 8%
- Liquidity Mining: 35%
- Total APY: 43%

DUSD/USDC Pool:
- Trading Fees: 3%
- Liquidity Mining: 15%
- Total APY: 18%

Liquidity Mining

Staking LP Tokens

After providing liquidity, stake LP tokens for rewards:

1. Receive LP tokens from liquidity provision
2. Navigate to "Liquidity Mining" section
3. Select your pool
4. Stake LP tokens
5. Start earning DI rewards

Reward Calculation

Your Pool Share = Your LP Tokens / Total LP Tokens
Daily Rewards = Pool Daily Rewards × Your Pool Share

Example:
Pool Daily Rewards: 1000 DI
Your Pool Share: 2%
Your Daily Rewards: 20 DI

Boost Mechanisms

DI Token Boost:

• Hold DI tokens for up to 2.5x reward boost

• Boost = min(2.5, DI_held / LP_value × 0.4)

Loyalty Boost:

• Longer liquidity provision gets bonus

• 1% bonus per month, up to 12%

Managing Your Position

Monitoring Tools

Track key metrics:

Position Dashboard:
- LP Token Balance: 0.5 LP tokens
- Pool Share: 2.1%
- Current Value: $2,150
- Impermanent Loss: -$45 (-2.1%)
- Fees Earned: $125
- Mining Rewards: $340
- Net P&L: +$420 (+19.5%)

Rebalancing Strategy

When to Rebalance:

• Significant price divergence (>20%)

• Better opportunities in other pools

• Risk tolerance changes

• Reward rate changes

Rebalancing Process:

1. Calculate current position value

2. Assess impermanent loss

3. Compare with holding strategy

4. Factor in switching costs

5. Execute if net benefit > 2%

Adding More Liquidity

Dollar-Cost Averaging:

Strategy: Add liquidity regularly
Week 1: Add $500 to DI/ETH
Week 2: Add $500 more
Week 3: Add $500 more
Benefit: Reduces timing risk

Advanced Strategies

Range Orders

For concentrated liquidity (when available):

Set Price Range:
Lower Bound: $8 per DI
Upper Bound: $12 per DI
Current Price: $10 per DI
Benefit: Higher fees within range
Risk: Out-of-range = no fees

Yield Farming Rotation

Move between pools for optimal returns:

Decision Framework:
1. Monitor APY changes weekly
2. Calculate switching costs
3. Estimate time to break-even
4. Execute if benefit > 3% APY

Hedging Strategies

Perpetual Hedge:

LP Position: $10,000 DI/ETH (50% DI exposure)
Hedge: Short $5,000 DI perpetual
Result: Reduced IL, maintain fee earnings
Cost: Funding fees on perpetual

Risk Management

Position Sizing

Conservative Approach:

• Maximum 10% of portfolio in LP

• Focus on stable pairs

• Regular monitoring and rebalancing

Aggressive Approach:

• Up to 30% of portfolio in LP

• Higher risk/reward pairs

• Active management required

Stop-Loss Strategies

IL-Based Stops:

Set IL Threshold: 5%
Monitor Daily: Check IL vs rewards
Exit Trigger: IL > 5% and rewards < IL
Action: Remove liquidity, reassess

Time-Based Stops:

• Set maximum holding period

• Reassess every 30-90 days

• Exit if objectives not met

Tax Implications

LP Token Creation

Generally not a taxable event:

• No immediate gain/loss recognition

• Cost basis tracks underlying assets

• LP tokens represent pool ownership

Reward Taxation

Liquidity Mining Rewards:

• Taxable as income when earned

• Fair market value at receipt

• Daily accrual creates daily events

Trading Fee Rewards:

• Also taxable as income

• Compounding creates additional events

• Track for accurate reporting

Exit Taxation

Removing Liquidity:

Tax Calculation:
Initial Deposit: 1 ETH + 4000 DI
Exit Received: 1.1 ETH + 3800 DI
ETH Gain: 0.1 ETH (taxable)
DI Loss: 200 DI (deductible)
Net: Calculate based on USD values

Troubleshooting

Common Issues

High Gas Fees:

• Time transactions during low congestion

• Use gas trackers for optimal timing

• Consider L2 solutions when available

Slippage Errors:

• Increase slippage tolerance

• Break large orders into smaller ones

• Check for sufficient liquidity

Reward Discrepancies:

• Verify LP tokens are staked

• Check reward distribution schedule

• Confirm you're in correct pool

Getting Help

Support Channels:

• Discord community support

• Documentation and FAQs

• Support ticket system

• Community forums

Best Practices

Before Providing Liquidity

• Research pool mechanics thoroughly

• Understand impermanent loss

• Calculate potential returns

• Assess risk tolerance

• Start with small amounts

During Liquidity Provision

• Monitor position daily

• Track IL vs rewards

• Stay informed about program changes

• Participate in governance

• Keep detailed records

Optimization Tips

• Compound rewards regularly

• Time entries during high volatility

• Diversify across multiple pools

• Use boost mechanisms

• Plan exit strategies

Security Considerations

• Verify contract addresses

• Use hardware wallets for large amounts

• Keep private keys secure

• Monitor for protocol updates

• Understand emergency procedures