A decentralized exchange is only as healthy as its liquidity, and maintaining the long-term health of the SundaeSwap DEX is a top priority. Because the initial contributors to the protocol chose an AMM (Automated Market Maker) model, the DEX is able to use yield farming to incentivize and reward stability in its liquidity pools.
In this category, we'll explore how Yield Farming works on SundaeSwap. We'll explain how liquidity pools work, describe staking on the DEX and how it differs from staking your ADA to a stakepool, and provide a walkthrough guide on how to begin Yield Farming on the DEX.
Before we dive into the rest of this section, a reminder that using any DEX involves various significant risks, including the risk of financial loss; before using any DEX you should closely review all relevant documentation and audit information, and the terms of any web or mobile interface you use to access the DEX.
Yield farming on SundaeSwap will give Liquidity Providers (LPs) a way to earn SUNDAE in correspondence with the amount (and or value) of LP tokens staked. A total of 500,000 SUNDAE will be distributed on a daily basis over the first six months of the DEX’s operation to yield farmers that meet specific conditions. At a high level, the process of yield farming on the SundaeSwap DEX will work as follows:
Liquidity providers receive LP tokens in exchange for depositing a pair assets into a pool.
If the LP tokens received are for qualified pools (see here), Liquidity Providers will be able to stake their LP tokens into the yield farming contract and obtain an additional yield on top of the fees they accrue via being an LP.
Initially, yield farming contracts will be set for 30-day terms. Terms will roll over automatically — you do not need to withdraw and re-stake to continue earning yield.
At the end of each yield contract term (the 30-day yield period), users may withdraw their initial LP tokens, as well as any LP tokens earned as yield from qualified pools. Early withdrawal results in no yield farming rewards being earned for that term. Withdrawing from a rolled over term early will not invalidate any yield earned from completed earlier terms.
The SundaeSwap DAO will swap these additional yield-generated liquidity tokens for SUNDAE.