Users that elect to provide liquidity into the Liquidity Pool will be able to select which market they'd like to provide liquidity for. By doing so, the user becomes an LP.
Providing liquidity increases the total pool of liquidity available within that market by increasing K. In turn, this lowers slippage and reduces price impact; resulting in an overall better trading experience for other users.
Since the LP collateral is cross margined within Drift, they'll continue to earn lending interest and have capital available for margin trading.
For providing liquidity to the DAMM, LPs receive a proportion of the following fees generated by the selected market relative to the liquidity they provide:
- 80% of Trading Fees as proportionate to their liquidity (versus the total K) for that market
Additionally, when trades occur against the DAMM, LPs will automatically receive a proportion of the DAMM's future positions. For example, if an LP starts providing 10% of the liquidity to the DAMM in the SOL market, and then a trader goes opens a 10 SOL long position, then the LP will receive a 1 SOL short position.
For more technical information on providing liquidity, please see