Liquidity Providers (LPs)

What Are Liquidity Providers?

Liquidity Providers (LPs) are users who add tokens to VSC’s liquidity pools. Their contributions make cross-chain swaps and decentralized trading possible. In return for supplying assets, LPs earn fees and may be eligible for additional rewards. LPs are fundamental to the VSC ecosystem, providing the capital that powers Automated Market Makers (AMMs), cross-chain settlement, and efficient token routing.

Unlike centralized exchanges where a few market makers control liquidity, VSC opens the door for anyone to become an LP and earn rewards by providing liquidity.

The Role of LPs in VSC

In VSC, LPs contribute liquidity to dual-asset pools - always with HBD (Hive Backed Dollars) on one side. Each pool pairs a volatile asset (such as BTC, ETH, Hive or SOL) with HBD.

For example, the BTC/HBD pool consists of Bitcoin and HBD. When users want to swap BTC to ETH, the protocol routes through HBD (BTC → HBD → ETH), which simplifies routing logic.

This design provides two key benefits:

• Reduced risk exposure for LPs, who only need to deal with one volatile asset.
• Simplified and standardized routing for cross-chain swaps.

How Liquidity Provision Works

Pairing Your Assets:

To become an LP, you need to supply equal USD value of:

• A volatile token (e.g., BTC, Hive)
• HBD (Hive Backed Dollars)

For example, if BTC is priced at $60,000, you would add $60,000 worth of BTC and $60,000 worth of HBD into the pool.

Depositing to the Pool:

Once deposited:

• You receive LP tokens that represent your share of the pool.
• These tokens can be redeemed at any time to withdraw your underlying assets and earned fees.

Facilitating Swaps:

As users perform swaps (e.g., ETH for SOL), your pool is used to process a portion of that trade. This changes the balance of tokens in the pool, and you earn a fee for providing the liquidity used in the transaction.

Earning Rewards

LPs are compensated through two primary mechanisms:

1. Swap Fees

A portion of every swap fee is distributed proportionally to all LPs in the pool.

2. Incentive Programs

VSC may also introduce additional rewards in the form of governance tokens or protocol incentives to encourage deeper liquidity in key pools.

Withdrawing Liquidity

Liquidity can be withdrawn at any time by redeeming (burning) LP tokens. Upon withdrawal, you will receive:

• Your portion of both tokens in the pool.
• Your share of accrued swap fees.

Tools for LPs

• Altera: VSC’s primary interface for liquidity provision. Through Altera, users can monitor positions, track yield, and interact directly with liquidity pools in a secure and intuitive way.Altera is a decentralized trading interface with support for advanced LP features, analytics, and governance integration.

How to Become an LP – Step by Step

1. Acquire HBD and a Supported Token - Obtain HBD through Hive’s DEX or integrations, and the corresponding token (e.g., BTC, ETH) from a compatible exchange.
2. Connect a Wallet - Use a Hive-compatible wallet, an EVM-compatible wallet or a wallet of your choice to access the Altera app.
3. Select a Pool - Use Altera to choose a liquidity pool that fits your strategy (e.g., BTC/HBD, ETH/HBD).
4. Deposit Assets - Provide an equal USD value of both assets and confirm your deposit to receive LP tokens.
5. Earn & Monitor - Once deposited, your liquidity earns swap fees passively. Use Altera to monitor performance, fees, and exposure.

Impermanent Loss

Impermanent loss occurs when the price of tokens in a liquidity pool changes compared to when you deposited them. This can cause your withdrawal value to be lower than simply holding the tokens. Fees and rewards may offset this loss, but it’s important to be aware of this risk when providing liquidity.

Final Thoughts

Providing liquidity on VSC is a core way to participate in and support the network. With single-sided volatility exposure and the stability of HBD in every pool, VSC offers a more predictable and risk-managed LP experience than many traditional AMMs.

Whether you’re seeking passive income, a more diversified exposure to crypto markets, or a way to contribute to decentralized infrastructure, LPing on VSC is designed to be open, secure, and rewarding.