Aero for Liquidity Providers
A short guide to providing liquidity on Aero: the two ways a deposit earns, where swap fees go, what pool types exist, and what to watch once capital is deposited.
Getting started as an LP
What is a liquidity provider on Aero?
A liquidity provider (typically called an LP) deposits tokens into a pool so that traders have something to trade against. In return the deposit earns, through one of two mechanisms that the LP chooses between.
What are the two ways a deposit earns?
Every liquidity deposit is either AERO-earning or Fee-earning. It earns one or the other, never both, and it can be switched between them at any time.
- AERO-earning. The deposit receives an amount of AERO Rewards dependent in part on the size of the LP, the Allocation Power Token Operators have directed to that pool and on the pool's gauge cap.
- Fee-earning. The deposit keeps a portion of the fees generated. No AERO Rewards accrue to it.
Where do swap fees go?
It depends on the deposit, not the pool, and both kinds can sit in the same pool at once.
On an AERO-earning deposit, 100% of the swap fees that deposit generates route to the Token Operators allocating to the pool, and the LP earns AERO Rewards in place of the swap fees. On a Fee-earning deposit in a Slipstream pool, the LP keeps a portion of the fees generated and the remainder goes to Token Operators.
How do I provide liquidity?
Select a pool, choose the reward type, deposit, and confirm. For a Slipstream pool there is one more decision, the price range the deposit covers. The deposit screen shows the expected return for the reward type selected.
Does an LP need to be a Token Operator?
No. Providing liquidity requires no AERO and no stake. Staking AERO to become a Token Operator is a separate role with separate earnings: Token Operators direct AERO Rewards to pools and earn Exchange Revenue. The two roles can be held at once, and many participants do hold both.
Pool types and deposits
What pool types can an LP deposit into?
- Slipstream pools hold concentrated liquidity. The LP picks a price range, and the deposit is active and earning only while the pool's price sits inside it. Concentrating capital in a narrower band earns more per dollar while it is in range, and nothing when the price leaves.
- Basic Pools hold full-range liquidity, so a deposit is always in range and never needs adjusting. Volatile pools suit pairs whose assets are not expected to track each other. Stable pools suit assets that trade near parity, such as two stablecoins.
What is concentrated liquidity?
Placing liquidity within a chosen price range rather than spreading it across every possible price from zero upward. Because the capital is concentrated where trading actually happens, it is far more capital-efficient than full-range liquidity. The tradeoff is that it needs attention: a deposit stops earning when the price moves outside its range, and returns to earning if the price comes back.
What does an LP deposit?
Both of the pool's tokens. In a Slipstream pool, the chosen range determines the ratio, and a range set entirely above or below the current price takes only one of the two tokens. The deposit screen shows the required amounts once the range is set.
What does an LP receive for a deposit?
A Slipstream deposit is represented as an NFT, because each one has its own price range and its own accrued earnings. A Basic Pool deposit is represented by fungible LP tokens, since every deposit in the pool covers the same full range.
Earning and claiming
How are AERO Rewards distributed?
To the AERO-earning deposits in a pool, in proportion to each deposit's share of that pool's eligible liquidity. In a Slipstream pool only in-range liquidity is eligible, so a deposit sitting outside the range earns nothing while it is out.
The total flowing to any pool is set by Token Operators, who direct Allocation Power to it, and is limited by the pool's gauge cap.
Do rewards and fees have to be claimed?
Yes. Earnings accrue to the deposit and are claimed when the LP chooses. There is no vesting and no claim window.
Is there a faster way to claim across many deposits?
Yes. Claim-All batches the rewards and fees from every deposit into a single transaction, which matters most for an LP running several positions at once.
Can an out-of-range Slipstream deposit be re-centered?
Yes. The rebalance flow moves a position to a new range in one atomic transaction instead of requiring a manual withdrawal, swap, and re-deposit.
Impermanent loss
What is impermanent loss?
When the prices of a pool's two tokens diverge after a deposit, the pool's pricing leaves the deposit holding more of the weaker asset and less of the stronger one. Its value can end up below what simply holding the two tokens separately would have been worth. It is called impermanent because the gap narrows again if prices return, and only becomes final on withdrawal.
Can impermanent loss be avoided?
Not eliminated, but it scales with how far the two prices diverge, so it is smallest on pairs whose assets track each other closely, such as two stablecoins, and largest on pairs that move independently.
How do fees and rewards relate to impermanent loss?
They accrue continuously while the deposit is earning, whereas impermanent loss is only realized on withdrawal. Earnings can reduce or offset a loss, but nothing guarantees they cover it. The deposited tokens stay exposed to price movement either way.
Should a deposit be withdrawn when impermanent loss is high?
Withdrawing is what makes the loss final. Whether that is the right move depends on the position and the outlook for the pair, which is a judgment for the LP rather than something the protocol can answer.
What protects an LP's earnings?
What is MEV capture, and how does an LP benefit?
MEV is value that bots extract from the ordering of transactions around a pool, and on most venues it leaves the system entirely. Aero captures a portion inside the AMM through a priority-fee tax on high-priority transactions, and that value accrues as pool fees. It arrives in the same fee flow as swap fees, so there is nothing separate to claim.
Providing liquidity across networks
Can liquidity be provided on more than one network?
Yes. Aero operates on several networks, and the same pair can often be supplied on more than one. Trading activity, and the AERO Rewards directed to a pool, differ from network to network, so the same pair does not earn identically everywhere.
How does capital move between networks?
Withdrawing on one network and depositing on another. Metaswaps handles moving the tokens themselves across networks in a single transaction.
Risks
What are the main risks of providing liquidity?
- Impermanent loss, covered above, which is the risk specific to providing liquidity.
- Price risk. The deposited tokens stay exposed to their own price movement.
- Range risk. A Slipstream deposit earns nothing while the price is outside its range.
- Smart contract risk. Aero's contracts are audited, but no onchain protocol is risk-free.
- Changing rewards. Token Operators can redirect Allocation Power away from a pool, which reduces or ends the AERO Rewards flowing to it.
What happens if a pool stops receiving AERO Rewards?
An AERO-earning deposit in a pool with no rewards flowing to it earns nothing, because its swap fees are routing to Token Operators while no AERO Rewards arrive in exchange. Switching the deposit to Fee-earning restores fee income, and the deposit can be moved elsewhere instead.
What happens if trading volume in a pool dries up?
Fee-earning deposits earn less, because there are fewer trades generating fees. Deposits also face wider price swings in a shallow pool, and exiting a large position becomes harder when there is little liquidity on the other side.
Troubleshooting
Why is the deposit holding a different token ratio than it started with?
Because trades have moved through it. Every swap against the pool shifts the balance of the two tokens, and the deposit reflects the pool's current price. This is normal, and it is the same effect that produces impermanent loss.
Why has the deposit stopped earning?
On a Slipstream deposit, most often the price has moved outside its range. On an AERO-earning deposit, it can also mean the pool is no longer receiving AERO Rewards. The position view shows the range and the current reward type.
Why are the fees lower than expected?
On a Fee-earning deposit, either the pool's trading volume is lower than assumed or the deposit is a smaller share of the pool than assumed. On an AERO-earning deposit the question does not apply, because that deposit earns AERO Rewards rather than fees, and its fees route to Token Operators.
Why is the displayed return so high?
Displayed returns annualize current conditions, and those conditions rarely hold. A high number can come from a temporary burst of volume or a reward level that will change. It is a snapshot, not a forecast.