> For the complete documentation index, see [llms.txt](https://docs.drunkencats.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.drunkencats.xyz/product/liquidity.md).

# Liquidity

## Overview

Liquidity provision is the backbone of any AMM-based DEX. By depositing tokens into a liquidity pool, you enable other users to swap those tokens and earn a share of trading fees in return.

On DrunkenCats, you can:

* Add liquidity to existing token pairs.
* Remove liquidity at any time.
* Track your LP positions in the Portfolio page.

***

#### Add Liquidity

Follow these steps to provide liquidity to a pool:

1. Navigate to the **Liquidity** page.
2. Click **"Add Liquidity"**.
3. Select the two tokens you want to provide (e.g., zkLTC and dcUSD).
4. Enter the amount for one token — the platform will auto-calculate the equivalent amount for the second token based on the current pool ratio.
5. Click **"Approve"** for each token if this is your first time providing liquidity with them.
6. Click **"Add Liquidity"** and confirm the transaction in your wallet.
7. Once confirmed, you will receive **LP tokens** representing your share of the pool.

***

#### Remove Liquidity

1. Go to the **Liquidity** page or your **Portfolio** → LP Positions.
2. Select the pool you want to withdraw from.
3. Choose the amount of LP tokens to redeem (partial or full withdrawal).
4. Click **"Remove Liquidity"** and confirm the transaction.
5. You will receive both tokens back in proportion to your pool share.

> Removing liquidity is instant and can be done at any time — there is no lockup period.

***

#### LP Tokens

When you add liquidity, you receive **LP (Liquidity Provider) tokens**. These tokens:

* Represent your proportional share of the pool.
* Are standard ERC-20 tokens held in your wallet.
* Must be redeemed (burned) to withdraw your underlying assets.
* Increase in value as trading fees accumulate in the pool.

Your LP token balance and current pool value are visible in the **Portfolio** page under LP Positions.

***

#### Pool Fees

* On **testnet**, there are no swap fees (0%), so liquidity providers do not earn fees during the testing phase.
* On **mainnet**, each swap will carry a **0.3% fee**. This fee is proportionally distributed to all liquidity providers in the pool based on their share.

***

#### Risks

**Impermanent Loss**

Impermanent loss occurs when the price ratio of your deposited tokens changes compared to when you entered the pool.

* If one token's price moves significantly against the other, the value of your LP position may be less than if you had simply held the tokens.
* The loss is "impermanent" because it can reverse if prices return to the original ratio.
* It becomes permanent only when you remove liquidity at a different price ratio.

**Example:** If you add liquidity to a zkLTC/dcUSD pool and zkLTC doubles in price, your position will contain more dcUSD and less zkLTC than you originally deposited.

**Volatility**

* High-volatility token pairs carry greater impermanent loss risk.
* Pairs involving stablecoins (e.g., zkLTC/dcUSD) tend to have lower impermanent loss.
* Monitor your positions regularly using the Portfolio page.

***

#### Example Pools

| Pool              | Pair                                | Notes                                                                   |
| ----------------- | ----------------------------------- | ----------------------------------------------------------------------- |
| **zkLTC / dcUSD** | Wrapped Litecoin + Stablecoin       | Primary trading pair — lower IL risk due to stablecoin component        |
| **zkLTC / CAT**   | Wrapped Litecoin + CAT Points Token | Higher volatility — suitable for users who want exposure to both assets |


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