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Earn Yield as a Liquidity Provider
Liquidity providers can use the Rift protocol to double their farming returns and protect themselves from the downside risk of impermanent loss.
Liquidity providers can deposit into Rift Vaults through the webapp. The capital deposited will be paired with governance tokens provided by DAOs and then deployed to a DEX to start earning swap fees. As DAOs are liquidity-motivated and LPs are profit-motivated, DAOs grant LPs the full yield earned by the position to incentivize participation.
The LP returns are determined by the swap fees and relative price change in the token pair over the Vault epoch. APY projections are derived from annualized expected returns. Expected returns are calculated by simulating the Rift protocol mechanics across many epoch start dates.
Using Rift to support DAO token liquidity is more profitable and less risky than depositing into a DEX directly.
Liquidity providers earn yield from swap fees and other rewards while enjoying downside IL protection. Upon withdrawal, all the swap fees and rewards are converted to the asset the LP originally deposited.
As a Rift LP, the upside is virtually limitless. LPs on Rift are able to farm with 2x leverage to earn double the returns and provide sustainable liquidity to DAOs at the same time.
The downside risk of depositing directly to a decentralized exchange (DEX) is high. As a DEX LP, you would need to deposit both tokens in the pair and take on the risk of impermanent loss. Learn more about impermanent loss risk here: Risk and Return.
Rift LPs are protected from losses due to IL. On Rift, LPs are able to get back at least their initial deposit, except in the most extreme scenarios.