❓FAQs
Providing Liquidity
What is providing liquidity?
Providing liquidity refers to the act of depositing cryptocurrency assets into a liquidity pool on a decentralized exchange (DEX). These pools power the marketplace for trading various crypto pairs without the need for traditional market makers. As a liquidity provider (LP), you contribute assets to a pool in exchange for a portion of the trading fees generated from trades that occur in that pool. Additionally, LPs receive liquidity tokens that represent their share of the pool, which can be redeemed for the initial capital plus earned fees when withdrawn.
What to consider when providing liquidity on a DEX?
Impermanent Loss: Understand the risk of impermanent loss, which occurs when the price of your deposited assets changes compared to when they were deposited. The greater the divergence, the more significant the impermanent loss.
Pool Composition: Assess the assets within the pool. Pools with highly volatile assets might offer higher returns but come with increased risk.
Transaction Fees: Consider the fee structure of the DEX. Higher fees could mean higher rewards, but they might also reduce trading volume.
Tokenomics: Be aware of the economic model of the liquidity tokens and how they can be impacted by changes in the supply and demand of the underlying assets.
Smart Contract Risk: Evaluate the security of the DEX and the smart contracts governing the pools. Audited and time-tested contracts are generally safer.
Liquidity of the Pool: Analyze the total value locked (TVL) in the pool. A pool with higher liquidity typically has less slippage, potentially leading to better trade execution for users.
Duration of Investment: Plan your liquidity provision as a short-term or long-term investment. Some pools may offer incentives for longer staking periods.
DEX Reputation and Volume: Research the track record and trading volume of the DEX. A reputable and high-volume exchange can often provide a more stable earning potential.
Why do token prices on Krystal look different vs. in other apps?
Krystal may use different data sources vs. other apps, hence the price differences.
Krystal combines token prices from both market price and pool price.
At Krystal, token market price in USD, e.g: 1 ETH = $4,000 or 1 USDC = $0.998, is aggregated through Coingecko from multiple sources including centralized exchanges (Binance, OKX, Coinbase, …) and decentralized exchanges (Uniswap, SushiSwap, PancakeSwap, …).
The token pool price, e.g: 1 ETH = 4,008 USDC, is derived based on the pool states (the relative availability of the tokens within the pool, the fee tier, the liquidity distribution, …).
Even though Krystal collected both market price and pool price to back up each other, the price accuracy can still be impacted given:
Network issue or server error
Discrepancy between pool price on decentralized exchanges and market price on centralized exchanges
EVM node delay
How does Krystal estimate a pool APR?
The formula to calculate pool APR at Krystal is shown below:
APR = (24h earning * 365) / Current liquidity * 100%
The APR might vary based on multiple factors
Uniformly Distributed Liquidity vs. Concentrated Liquidity:
For Uniformly Distributed Liquidity (as in UniSwap v2 and other similar protocols), the current liquidity is the total liquidity in that pool at this moment.
For Concentrated Liquidity (as in UniSwap v3 and other similar protocols), the current liquidity is the amount of liquidity at a specific price range chosen by users. Therefore, narrower price range leads to smaller current liquidity, which then leads to higher APR.
Users’ Activities:
When an user makes a big deposit or withdraw, the amount of liquidity in the pool at the moment will be different than the amount of liquidity which generated earning in the last 24 hours. Therefore, the APR value will not be 100% accurate.
What is slippage?
Slippage is the difference between the price when an order is placed and the price when that order is executed. Slippage can happen when you swap, deposit and withdraw liquidity.
Swap Slippage
For any Swap transaction at Krystal, you can either choose the pre-selected slippage suggested by Krystal or set up your own slippage. As long as the execution price is within the slippage range, e.g., %1, your order will be executed. Otherwise, the order will fail, which means the swap will not occur.
Liquidity Deposit / Liquidity Withdraw Slippage
Slippage can also happen when you deposit or remove liquidity. The same logic as swap is applied: If execution price is within the slippage allowance, your order will be executed.
Swap
What are the fees on Krystal?
There are 2 main fees when you are interacting with Krystal's platform:
Gas fee
As a decentralised application, you will need to pay gas fees to interact with the smart contracts on Krystal. The gas fee that you incur will depend on the function and the congestion of the blockchain when you are making the transaction.
You may want to double-check the gas fee before approving any transactions.
To learn more about gas fees, check out our guide here.
Platform fee
Some of the platforms that are integrated with Krystal may have their own fees. These are not charged by Krystal, but it may affect the rates that you receive when performing transactions in our wallet.
Why can't my transaction be processed on Krystal?
If your trade cannot be carried out on our platform, here are some methods you can try:
Ensure that you have enough of the native token to pay for gas fees
Increase the amount of gas fees to pay for the transaction
Disconnect your wallet, reload the page and connect it again
If none of these solutions work, do contact us in our official Telegram group and our admins will help you to resolve your issue.
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