Providing liquidity
Depositing
You supply both sides of a pair, in the ratio the pool currently holds. The app computes the second amount once you type the first — deviating from the ratio is not possible, because the pool would immediately be arbitraged back.
In return you receive LP tokens: an ERC-20 receipt representing your share of that pool. Hold them and your share is intact; transfer them and you transfer the position.
The first deposit into a brand-new pool sets its price. If you seed a pool at a ratio that does not match the wider market, an arbitrageur will correct it and you will absorb the difference.
Earning
The 0.30% fee on every swap stays in the pool’s reserves. There is no claim step and no reward token — your LP tokens simply redeem for more than you put in, provided fees have outpaced any price divergence.
Your claim at any moment is:
your share = your LP tokens / total LP supply
your tokens = your share × each reserveWithdrawing
Burn the LP tokens and receive your share of both reserves, fees included. There is no lockup and no withdrawal fee — you can exit in the same block you entered.
Impermanent loss
If the two tokens’ prices diverge after you deposit, the pool rebalances against you: you end up holding more of the one that fell and less of the one that rose. Compared with simply holding both tokens, that difference is impermanent loss. It becomes permanent when you withdraw.
Fees are what compensate for it. Whether they do is not guaranteed — a pair that moves sharply in one direction can leave you worse off than holding, even after every fee you earned.
Impermanent loss is not an edge case — it is the normal behaviour of a constant-product pool, and worth understanding before depositing.