Providing Liquidity

Why Provide Liquidity?

Adding liquidity to the iAERO/AERO pool:

• Earns trading fees (0.3% of volume)

• Earns additional AERO emissions (if gauged)

• Helps maintain iAERO peg to AERO

• Supports protocol growth

• earns LIQ community emissions

Understanding the Pool

Pool Type: Variable Rate (Volatile)

• Not a stable pool (prices can diverge)

• Standard xy=k AMM formula

• Suitable for correlated but not pegged assets

Expected Price Relationship

• iAERO should trade near 0.85 AERO

• May trade at premium if high demand

• May trade at discount if low demand

How to Add Liquidity

Step 1: Prepare Tokens

You need both tokens in the pair:

• iAERO tokens

• AERO tokens

Optimal Ratio: Check current pool ratio on Aerodrome

Step 2: Navigate to Aerodrome

1. Go to aerodrome.finance/liquidity

2. Search for "iAERO/AERO" pool

3. Click "Add Liquidity"

Step 3: Enter Amounts

• Enter amount of iAERO

• AERO amount auto-calculates based on pool ratio

• Or enter AERO and let iAERO auto-calculate

Step 4: Approve Tokens

1. Approve iAERO spending (if needed)

2. Approve AERO spending (if needed)

3. Wait for confirmations

Step 5: Add Liquidity

1. Click "Supply"

2. Review terms and price impact

3. Confirm transaction

4. Receive LP tokens

Managing Your Position

LP Token Benefits

• Represents your pool share

• Automatically earns fees

• Can be staked in gauge for emissions

• Transferable and tradeable

Staking LP in Gauge

1. Go to Aerodrome Finance Dashboard

2. Find iAERO/AERO position

3. Stake LP tokens

4. Earn additional AERO emissions

Impermanent Loss Considerations

What Is IL?

Impermanent loss occurs when token prices diverge from deposit ratio.

iAERO/AERO Specific Factors

• Lower IL Risk: Both tokens tied to AERO value

• Main Risk: iAERO depegging significantly from expected ratio

• Mitigation: Fees often offset IL for correlated pairs

IL Scenarios

Scenario 1: iAERO trades at premium

• You'll have more AERO, less iAERO

• Good if you're bullish on AERO

Scenario 2: iAERO trades at discount

• You'll have more iAERO, less AERO

• Good if you believe peg will restore

Calculating Returns

Total Returns =

1. Trading Fees (0.3% of volume)

2. Plus: Emissions (if staked in gauge)

3. Plus/Minus: IL (from price changes)

4. Plus: iAERO staking (if you stake remaining iAERO)

Example APR Calculation

• Pool TVL: $1,000,000

• Daily Volume: $100,000

• Daily Fees: $300

• Annual Fees: $109,500

• Base APR: 10.95%

• Plus emissions: +20-50% APR (varies)

Removing Liquidity

How to Withdraw

1. Go to your liquidity positions

2. Select iAERO/AERO position

3. Choose % to remove (25%, 50%, 100%)

4. Click "Remove"

5. Receive both tokens proportionally

If Staked in Gauge

1. First unstake from gauge

2. Then remove liquidity

3. Two-step process

Risk Management

Risks to Consider

• Smart Contract Risk: Unaudited protocols

• IL Risk: Price divergence between tokens

• Liquidity Risk: May face slippage on large withdrawals

• Opportunity Cost: Could earn more just staking iAERO

Risk Mitigation

• Start with small position

• Monitor price ratios regularly

• Consider single-sided staking if unsure

• Keep some dry powder for rebalancing

Advanced Strategies

1. Range Positioning

If using Slipstream (concentrated liquidity):

• Set range around 0.80-1.0 AERO per iAERO

• Tighter range = more fees but more IL risk

• Monitor and rebalance as needed

2. Gauge Voting

• Vote for iAERO/AERO gauge with your veAERO

• Increases emissions to the pool

• Higher APR for all LPs

FAQ

Q: Which is better - staking or LPing? A: Depends on risk tolerance. Staking is simpler and safer. LPing potentially earns more but has IL risk.

Q: Can I lose tokens providing liquidity? A: You can't lose tokens, but value can decrease from IL if prices diverge significantly.

Q: How often are LP rewards paid? A: Trading fees accumulate in real-time. Emissions paid weekly if staked in gauge.

Q: Should I provide equal dollar values? A: The pool automatically requires the current ratio. You can't choose arbitrary ratios.