Newbie seeking help on using ergodex

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Hello fellow Ergonauts and Cryptohomies, I’m all in on crypto and I want your expertise to help me make the most of using crypto, specifically using ergodex.io in a way that makes long term economic sense. I have used a DEX before on ethereum to do basic swaps, but I haven’t provided liquidity, which is what I want to do on ergodex.

I’m a cyberpunk, so beyond my investment in ergo, I also hold my savings in stable coins. I’m asking for help because if I were to lose these stable coin savings, it would be life-altering catastrophic for me. I’ve read up on SigmaUSD (sUSD) and I trust in the over-collateralized model; ergo, I want to move all of my stable coin savings into sUSD and provide liquidity for an ergo/sUSD pair on ergodex.

However, I’m still confused on:
1.) What are all of the risks associated with providing liquidity pair (LP) on ergodex?
2.) What are all of the rewards associated with providing LP on ergodex?
3.) What is impermanent loss, when should I be concerned about it?
4.) What service am I providing when I provide a LP? My understanding is that a LP Provider creates liquidity between 2 coins, and gains a fee when users trade between the 2 coins. Is there any other functionality of a LP?

The following is my current plan:
I plan to hold my current ERG long-term (several years). I have a stable coin reserve that I dip into for IRL expenses, but if the price of ergo drops below my personal valuation, I will buy more ERG using my stable coin reserve. Based on my understanding, it makes economic sense to take all of my ERG and all of my stable coin reserve to provide a LP on ergodex. When I want to dip into my stable coin reserve for IRL expenses, I will take it from the sUSD in my ERG/sUSD LP. If the price of ERG drastically declines, I will take from the sUSD in my LP and transfer that to ERG.

Does this plan make long-term economic sense?

Please let me know if I should be thinking about things differently, if I would even benefit from providing liquidity, if there are other ways I can use my ergo holdings to contribute to the community, etc.

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I’d cation you here… You should really research impermanent loss. There are plenty of articles and videos on this topic. Definitely don’t go all on with LP, maybe start with a small amount first.

Impairment loss (IL) is basically the amount of value you lost providing liquidity vs just holding the coins.

If you LP SigUSD/ERG and ERG starts pumping… people will be buying ERG and you will end up with more SigUSD than ERG vs what you put in. = loss in $ value.

To avoid IL, you want the $ value of each token to be the same ratio when you exit as when you provided liquidity. You want both pairs to go up and down in value at the same rate.

Say if you LP with USDT/USDC… the ratio will always be the same (or very close). both are worth $1. No IL

with SigUSD/ERG pair, ERG can go up or down in value vs SigUSD. So if you think ERG will go up in price… don’t LP. You may end up with more SigUSD than ERG = IL because you would have more value if you just held ERG

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What about ERG/sRSV LP?

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Same thing as far as risk. I’m currently in profit on ERG/SigRSV LP because both ERG and SigRSV are going up in price. …but this is risky and you should watch LP videos on youtube and research more.

Honestly if you want to play around, I highly recommend doing so with a very small amount until you have a good understanding.

Most liquidity providers lose money

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Yeah, LP seems like a potentially dangerous game. Same with SigRSV if you don’t hold for long-term. I’ve been messing around with LP on ergodex with a small amount.

I think I’ll wait to LP serious cash until there is a stable coin pair. Maybe the susy bridge will bring that soon.

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