Earn trading fees by supplying liquidity to IP token pools
Providing liquidity is an advanced feature that carries additional risks including impermanent loss. We recommend understanding the basics of tokenomics and trading before providing liquidity. Make sure you're comfortable with the concepts in our Trading guide first.
Liquidity provision is the process of depositing pairs of tokens into a liquidity pool so that other users can trade against them. In return, you earn a share of the trading fees generated by that pool.
Think of a liquidity pool as a shared trading pot. You deposit an equal value of two tokens (e.g., $500 worth of FILM-TOKEN + $500 worth of USDC). When others trade between these tokens, they pay a 0.3% fee. As a liquidity provider, you receive a proportional share of those fees based on your share of the total pool.
Equal value of two tokens into a pool
Traders use your liquidity to swap tokens
Your share of the 0.3% fee per trade
IPX uses an Automated Market Maker (AMM) model where liquidity pools replace traditional order books. Each pool contains a pair of tokens and uses a mathematical formula to determine prices.
Each pool consists of a pair: an IP token and USDC. For example, the FILM/USDC pool contains both FILM tokens and USDC. The ratio of the two tokens in the pool determines the price.
Example: A pool with 10,000 FILM tokens and 50,000 USDC implies a price of $5 per FILM token (50,000 / 10,000).
When you add liquidity, you receive LP (Liquidity Provider) tokens in return. These tokens represent your share of the pool and accumulate fees over time. When you want to withdraw, you redeem your LP tokens for your proportional share of the pool plus earned fees.
Each pool displays key metrics to help you evaluate before providing liquidity:
Go to the Trading page and click the "Pools" or "Liquidity" tab. You'll see a list of all available liquidity pools with their TVL, volume, and APR.
Choose the token pair you want to provide liquidity for. Consider:
Enter the amount of one token, and the interface automatically calculates the matching amount of the paired token to maintain the pool's balance. You must deposit both tokens in equal USD value.
Example: If FILM is trading at $5, entering 200 FILM tokens ($1,000 value) requires 1,000 USDC to match. Total deposit: $2,000.
If this is your first time adding this token to a pool, you'll need to approve the smart contract to access your tokens. Click "Approve" for each token. This is a one-time transaction per token (tiny gas fee on Base L2). You can approve the exact amount or an unlimited approval for future convenience.
Review the deposit summary:
Click "Add Liquidity" to confirm. Your LP tokens appear in your wallet immediately after the transaction confirms.
Every trade through your pool generates a 0.3% fee. These fees are automatically added to the pool, increasing the value of your LP tokens. You don't need to claim fees separately — they're baked into your LP position and realized when you withdraw.
At this rate, annualized return would be ~54.75% APR. Actual returns vary based on volume fluctuations.
Impermanent loss is the most important risk to understand before providing liquidity. It occurs when the price ratio of your deposited tokens changes compared to when you deposited them. The greater the divergence, the greater the loss.
When you provide liquidity, you deposit two tokens at a certain price ratio. If the price of one token changes significantly, the pool automatically rebalances by selling the appreciating token and buying the depreciating one. This means you end up with more of the lower-value token and less of the higher-value token compared to simply holding.
Impermanent loss: ~5.7%
Your LP position is worth ~5.7% less than if you had simply held both tokens.
Impermanent loss: ~25.5%
Significant loss compared to holding. Fees earned may or may not offset this.
Impermanent loss is only "impermanent" if prices return to their original ratio. If you withdraw while prices are diverged, the loss becomes permanent. However, if fees earned exceed the impermanent loss, you still come out ahead. This is why high-volume pools with relatively stable prices tend to be the best LP opportunities.
Navigate to the Pools page and click "My Positions" to see all your active liquidity positions with current values and earned fees.
Click on the position you want to withdraw from. Choose how much to remove:
The withdrawal summary shows:
Click "Remove Liquidity" to confirm. Both tokens return to your wallet immediately.
Focus on pools for established, revenue-generating projects with stable price action. Lower APR but significantly reduced impermanent loss risk. Ideal for conservative LPs who want predictable fee income.
Provide liquidity to pools with the highest trading volume relative to TVL. Higher volume-to-TVL ratios mean more fees per dollar of liquidity. However, high-volume pools often accompany volatile tokens — weigh the fee income against impermanent loss risk.
Trading volume often spikes around project milestones (token launches, revenue distributions, major announcements). Adding liquidity before these events can capture higher-than-average fees. Remove liquidity before expected high-volatility events to avoid impermanent loss.
Problem: The approval transaction for spending your tokens failed.
Approval issues are usually straightforward to resolve:
Problem: You have enough of one token but not enough of the other to add liquidity.
You need equal value of both tokens in the pair:
Problem: You added liquidity but don't see your LP tokens.
LP tokens may not appear in the standard wallet view:
Problem: You withdrew liquidity but received less value than you deposited.
This is likely due to impermanent loss: