How to Add Liquidity to a DEX(Part6)

 

Liquidity Pool:

  • When someone sells Token A to buy Token B in a DEX, they rely in the A/B Liquidity Pair Tokens provided by other users.

  • When they buy B tokens, there will now be fewer B tokens in the pool, and the price of B will go up. It's simple supply and demand economics.

  • Liquidity pools are smart contracts that contain blockchain tokens provided by users of the platform.

  • They are self-executing and do not need intermediaries to function.

  • They have other pieces of code, such as Automated Market Makers (AMMs), which help maintain equilibrium in liquidity pools using mathematical formulas.

Step 1:

  • The wallet must have sufficient funds of both tokens; in this example we will take the BNB/BUSD pair.

  • We have connected the MM wallet with the PancakeSwap DEX, click on Liquidity then Add Liquidity.

Step 2:

  • In Add liquidity put the amount of 0.5 BNB and then in select currency search for the other token.

  • It shows the list of available tokens in the DEX.

Step 3: Select the BUSD token:

  • The DEX indicates that 0.5 BNB corresponds to 239.52 BUSD.

  • Click Approve, the MM wallet requests permission to access the funds.

  • It also indicates that the transaction will cost 0.11 USD or its equivalent in BNB.

Step 4: The DEX reports that:

  • Credits 10.4925 LP Tokens as proof of investment, representing 0.004443% participation in the liquidity pool.

  • Upon confirming the supply, the MM wallet indicates a gas fee for the transaction of 0.1 BNB, to contribute a total of 0.6 BNB.

Step 5: In the BSC testnet browser, when entering the address of the purse or account, we see that:

  • The balance of BNB = 0.7291 decreases.

  • The balance of BUSD = 95.14 decreases.

  • 10.4925 LP tokens.

Step 6: Finally:

  • From the browser copy the address of the LP token contract.

  • List the LP tokens in the wallet.

 
Carlos Sampson