LP Risks

⚠️ Providing Liquidity Comes with Risks ⚠️

Before opening a position in liquidity pools, it’s important to understand the potential risks involved. These help you make smarter and more informed decisions when managing your assets.

1. Price Volatility

• Both the resource and token values can fluctuate in the market.

• When prices move, the total value of your position in the pool may increase or decrease compared to simply holding the assets separately.

How this affects you:

If the token (e.g., $SUI) rises sharply while the paired resource (e.g., $WOOD) remains stable or drops, the pool automatically rebalances, meaning you’ll end up holding more of the lower-value asset and less of the higher-value one.

2. Impermanent Loss

• When one asset in the pair changes price significantly relative to the other, your pool position adjusts automatically.

• This can result in impermanent loss, which is a potential loss compared to holding the assets individually.

How this affects you:

If $SUI’s price doubles while $STONE stays the same, you’ll hold more $STONE and less $SUI.

When you withdraw, your total value in USD may be lower than if you just held both outside the pool, even though you’re earning rewards from farming.

3. Out-of-Range Risk (for Concentrated Liquidity Pools)

• If the price moves outside your chosen range, your position becomes 100% one asset, stopping fee earnings until prices return within range.

How this affects you:

For example, if you provided liquidity for $WATER/$SUI within a specific range and $SUI suddenly spikes, your position may end up entirely in $WATER, exposing you fully to its value changes.

💡Tip: High APRs can be attractive, but market volatility can affect your real returns.