Using Mezo Pools
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Providing liquidity on Mezo Pools enables you to earn trading fees while deepening the market for Bitcoin-backed assets. This guide walks you through the complete process.
Prerequisites
Section titled “Prerequisites”Before you begin, ensure you have:
- A compatible wallet connected to Mezo
- Equal dollar values of both tokens in your desired pool pair
- Sufficient BTC for gas fees
Deposit
Section titled “Deposit”To provide liquidity, you need equal value of both assets in a trading pair. For a BTC/MUSD pool, you might deposit 50 worth of MUSD.
Visit mezo.org/earn/pools and select your desired pool. Enter the amount of one token you wish to deposit—the interface automatically calculates the required amount of the second token. Review your estimated LP tokens, confirm the transaction, and approve token spending if it’s your first time. Once complete, LP tokens representing your proportional share are minted to your wallet.
Understanding LP Tokens
Section titled “Understanding LP Tokens”When you deposit into a pool, the number of LP tokens you receive is calculated as sqrt(x × y) for the first deposit in a new pool, where x and y are the quantities of both tokens. For subsequent deposits, your LP tokens are proportional to your share of the total pool value.
These tokens represent your ownership of your assets in the pool and entitle you to:
- A proportional share of all trading fees generated by the pool
- The ability to redeem your underlying assets by burning the LP tokens
Gauges
Section titled “Gauges”Gauges determine how emissions are distributed across pools. Each pool has an associated gauge, and emissions are recalculated each epoch (7 days) based on veBTC holder votes. Votes persist between epochs unless voters change them, and pools with more votes receive a larger share of emissions. If a voter increases their voting power, they need to poke their votes so the updated weight is applied.
Pools with higher gauge votes receive more emissions, attracting more liquidity, which reduces slippage and increases trading volume. Higher volume generates more fees for LPs, creating a positive feedback loop across the ecosystem and aligning interests of LPs, voters, and traders.
Manage
Section titled “Manage”You earn from two sources as an LP:
Trading Fees
Section titled “Trading Fees”- Volatile Pools: 0.30% per swap
- Stable Pools: 0.05% per swap
- Collected in both tokens of the pair
- Stored separately in PoolFees contracts
- Claimable anytime without unstaking
MEZO Emissions (When Staked)
Section titled “MEZO Emissions (When Staked)”- Earned based on veBTC holder votes on gauges
- Distribution amounts determined by community governance
Claiming fees: Navigate to your position, click “Claim Fees,” and both tokens are sent to your wallet. You can claim fees without unstaking your LP tokens.
Claiming Rewards: Click “Claim Rewards” from your staked position to receive your earned incentives.
Withdraw
Section titled “Withdraw”Your LP tokensare returned to your wallet and stop earning emissions, but trading fees continue to accrue.
Unstaking: Select “Unstake,” enter the amount, and confirm.
Removing liquidity: Unstake your LP tokens first if needed, then click “Remove Liquidity” and confirm. Your LP tokens are burned and both underlying tokens are returned proportionally to your wallet.
Impermanent Loss
Section titled “Impermanent Loss”Providing liquidity exposes you to impermanent loss—when the price ratio between your tokens changes, you may have less value than simply holding both tokens. Volatile Pools like BTC/MUSD carry higher impermanent loss risk than Stable Pools like MUSD/USDC.
Smart Contract Risk
Section titled “Smart Contract Risk”Mezo Pools are audited, but smart contracts always carry inherent risk. Review audits at mezo.org/audits and only deposit amounts you’re comfortable with.