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One significant consideration when providing liquidity is impermanent loss, which occurs when the value of assets in a liquidity pool changes. This can lead to losing some of your initial investment, particularly when low total value locked (TVL) pools display high volume but lack sustainability. Thus, it's vital to conduct thorough research on the pools you select.
While some pools show impressive volumes, it’s essential to focus on the pairs that demonstrate more stability. For instance, opting for pairs like Solana and assets you trust will reduce the chance of losing your entire investment if one asset's value plummets.
Adding Liquidity: Step-by-Step
Once you've determined a promising pool, setting up your liquidity position is straightforward.