How to Provide Liquidity

Ready to earn while you hodl? Providing liquidity for $8 on Shadow Exchange is one of the best ways to generate passive income while supporting the INFINITY ecosystem. You'll earn trading fees, SHADOW rewards, and receive $8 bribes from INFINITY's treasury.

Why Provide Liquidity for $8?

Multiple Reward Streams

• Trading fees: 0.3% from all swaps in your pool
• SHADOW rewards: Native Shadow Exchange incentives
• $8 bribes: Additional rewards from INFINITY treasury
• xSHADOW governance: Participate in protocol decisions

Shadow Exchange Advantages

• Concentrated liquidity: Capital efficiency like Uniswap V3
• x(3,3) model: Revolutionary incentive system
• Sonic native: Sub-second transactions, near-zero gas
• Proven performance: #3 fee earner on Sonic network

Pool Options

Concentrated Liquidity (CL) Pool - Recommended

Best for: Active LPs who want maximum efficiency

• Type: Uniswap V3-style concentrated liquidity
• Capital efficiency: 10-100x more efficient than V2
• Management: Requires active price range management
• Rewards: Higher fees due to concentrated capital

Legacy Pool (V2-style)

Best for: Passive LPs who want "set and forget"

• Type: Traditional AMM like Uniswap V2
• Capital efficiency: Lower but stable
• Management: Passive, no range management needed
• Rewards: Lower fees but no management required

Getting Started: Step-by-Step

Prerequisites

• Sonic network configured in your wallet
• S tokens for gas fees (~$1-5 worth)
• $8 tokens and S tokens for the pair
• Equal USD value of both tokens

Step 1: Acquire Tokens

You'll need equal USD values of S and $8:

Get S tokens:

• Bridge ETH to Sonic (becomes S automatically)
• Or swap other tokens to S on Shadow

Get $8 tokens:

• Buy on Shadow Exchange or Fly
• Or mine $8 tokens directly

Step 2: Connect to Shadow Exchange

1. Visit Shadow Exchange

   • Go to app.shadow.so
   • Connect your wallet (MetaMask, Rabby, etc.)
   • Verify you're on Sonic network

2. Navigate to Liquidity

   • Click "Liquidity" or "Pools" section
   • Find the S/$8 trading pair
   • Choose your pool type (CL or Legacy)

Step 3: Concentrated Liquidity Setup

If choosing CL pool (recommended for active users):

1. Set Price Range

   • Current price: Displayed automatically
   • Min price: Lower bound of your range
   • Max price: Upper bound of your range
   • Tip: Narrower ranges = higher fees but more risk

2. Optimize for Strategy

   • Conservative: ±20-30% around current price
   • Moderate: ±10-20% around current price
   • Aggressive: ±5-10% around current price

3. Monitor and Adjust

   • Check daily: Is price still in range?
   • Rebalance: Move range when price shifts
   • Compound: Reinvest earned fees

Step 4: Legacy Pool Setup

If choosing legacy pool (recommended for passive users):

1. Enter Amounts

   • Input amount of S tokens
   • System auto-calculates $8 amount needed
   • Or input $8 amount and let it calculate S

2. Review Ratio

   • 50/50 split: Equal USD value each side
   • Slippage tolerance: Usually 0.5-1%
   • Impact: Higher for larger positions

3. Approve and Deposit

   • Approve spending for both tokens
   • Confirm liquidity provision
   • Receive LP tokens representing your share

Earning Rewards

Shadow Exchange Rewards

1. Lock LP Tokens

   • Stake your LP tokens in Shadow's gauges
   • Receive SHADOW tokens as rewards
   • Higher APR for longer locks

2. Vote with xSHADOW

   • Convert SHADOW → xSHADOW for governance
   • Vote on gauge weights
   • Direct more rewards to $8 pools

INFINITY Bribes

INFINITY's treasury provides additional $8 bribes to incentivize liquidity:

1. Automatic Distribution

   • Bribes distributed to xSHADOW holders
   • Proportional to voting power
   • Typically weekly distributions

2. Maximizing Bribes

   • Hold more xSHADOW for bigger share
   • Vote for $8 gauge to increase pool rewards
   • Longer locks = more governance power

Risk Management

Impermanent Loss

What it is: Loss when token prices diverge

• S goes up, $8 stable: You'll have more $8, less S
• $8 goes up, S stable: You'll have more S, less $8
• Both move together: Minimal impermanent loss

Mitigation strategies:

• Choose stable pairs: $8/S are both Sonic ecosystem tokens
• Monitor ranges: Keep CL positions active
• Consider timeframe: Longer holds often recover IL through fees

Smart Contract Risk

• Battle-tested: Shadow Exchange is proven on Sonic
• Audited contracts: Professional security reviews
• Insurance: Consider DeFi insurance for large positions
• Start small: Test with small amounts first

Advanced Strategies

Automated Range Management

• Third-party tools: Use range management services
• Bot strategies: Automated rebalancing
• Gas optimization: Batch multiple adjustments

Multi-Pool Strategy

• Diversify: LP in multiple pools
• Risk levels: Mix conservative and aggressive ranges
• Yield optimization: Move capital to highest-yield opportunities

Bribe Maximization

• Accumulate xSHADOW: More governance = more bribes
• Strategic voting: Support gauges with highest bribes
• Timing: Vote close to bribe distribution dates

Monitoring Your Position

Key Metrics to Track

• Current APR: Fees + rewards + bribes
• IL percentage: Current impermanent loss
• Range efficiency: Time spent in-range (CL only)
• Fee accumulation: Daily/weekly fee earnings

Tools and Dashboards

• Shadow Exchange interface: Built-in analytics
• DeFiLlama: Third-party tracking
• Sonic Explorer: On-chain verification
• Portfolio trackers: Zapper, DeBank for overview

When to Act

• Rebalance CL ranges: When price moves 20-30% outside
• Harvest rewards: When gas costs < 5% of rewards
• Exit positions: If IL exceeds accumulated fees

Tax Considerations

Taxable Events (Consult Your Tax Professional)

• Adding liquidity: May be taxable swap
• Removing liquidity: Potential gains/losses
• Reward claims: Usually taxable income
• Impermanent loss: Complex calculation

Record Keeping

• Transaction hashes: Save all LP-related transactions
• Timestamps: Record entry/exit times and prices
• Reward tracking: Log all SHADOW and bribe payments
• IL calculations: Track for potential loss deductions

Getting Help

Community Support

• Telegram: Join the LP discussion channels
• Discord: Shadow Exchange official support
• Documentation: Shadow Exchange docs

Technical Issues

• Transaction failures: Check gas limits and slippage
• Missing rewards: Verify gauge staking
• Contract interactions: Use official interfaces only

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Ready to start earning with your $8? Providing liquidity is one of the most effective ways to generate passive income while supporting the INFINITY ecosystem. Every LP helps create deeper liquidity, tighter spreads, and a better trading experience for everyone.

Start small, learn the process, then scale up as you get comfortable. Welcome to the LP community where hodling pays dividends!

Always DYOR and never invest more than you can afford to lose. DeFi involves smart contract risks.