> For the complete documentation index, see [llms.txt](https://docs.dackieswap.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.dackieswap.xyz/dackieswap/product-features/liquidity-providers/v2.md).

# V2 Liquidity

## Overview

In DeFi, V2 liquidity is a system where people (liquidity providers) deposit two tokens of the same value, like ETH and USDC, into a "pool." This pool allows others to trade those tokens without needing a centralized exchange.

## **How it works**

<figure><img src="/files/TSUdki8H8rhwiesmY8rg" alt="" width="375"><figcaption></figcaption></figure>

* **Trading Formula:** A simple formula (x \* y = k) keeps the pool balanced. When someone trades, the token prices change automatically based on supply and demand.
* **Rewards for Providers:** Liquidity providers earn a small fee (e.g., 0.3% for every trade) as a reward. In return, they get LP tokens, which show their share of the pool.
* **Risk of Impermanent Loss:** Providers may lose potential profits if token prices change a lot while their tokens are in the pool.
* **Token Pairs:** Each pool is set for one trading pair (e.g., ETH/DAI), and they operate separately.
* **Use in Other Protocols:** LP tokens can also be used in other DeFi apps, like yield farming, staking, lending, or trading.

## **When to use V2 liquidity**

* **For Traders:** Use V2 pools to trade tokens quickly and easily, with prices that update automatically based on supply and demand.
* **For Providers:** Consider providing liquidity if you want to earn passive income through trading fees and are okay with the risk of impermanent loss.
* **For DeFi Users:** Use the LP tokens in other DeFi activities, like staking or borrowing, to maximize returns.

## Fee

Refer V2 fee at [Trading Fee](/dackieswap/product-features/traders/trading-fee.md).


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