How Liquidity Pools Generate Rewards on STON.fi

I used to think liquidity pools were only for advanced DeFi users.

The first time I came across terms like AMM, LP tokens, trading fees, APR, farming and impermanent loss, it felt like there was too much to understand before I could even start.

After spending more time exploring STON.fi, I realized the main idea is actually pretty simple.

A liquidity pool needs liquidity so users can swap tokens.

And the people providing that liquidity can earn from the activity taking place in the pool.

That’s what I want to break down.

First, what exactly is a liquidity pool?

A liquidity pool is a smart contract containing tokens that users can trade against.

For example, a TON/USDT pool contains both TON and USDT.

When someone wants to swap TON for USDT, they can interact with the pool instead of needing to find another user willing to make the opposite trade at that exact moment.

This is where liquidity providers come in.

If I decide to provide liquidity, I deposit the required amount of both assets into the pool.

In return, I receive LP tokens representing my position in that pool.

So I’m essentially making my tokens available for other users to trade with.

Now, where do the rewards actually come from?

This was the part I wanted to understand properly.

When traders make swaps through a liquidity pool, a trading fee is charged.

A portion of those fees is distributed to liquidity providers according to the pool’s fee structure.

So my potential earnings are connected to the trading activity happening in the pool.

If users are actively swapping through a pool, more fees can be generated.

This means liquidity providing isn’t simply:

“Deposit tokens and wait.”

I’m contributing liquidity that helps the DEX process swaps.

In return, I can earn a share of the fees generated by that activity.

That connection between liquidity → trading → fees → rewards is what made the whole system easier for me to understand.

But how is my share of the fees calculated?

This depends on things like the pool’s trading volume, fee structure and my share of the liquidity.

For example, if I provide 5% of a pool’s liquidity, I have a corresponding share of the fees allocated to liquidity providers.

The important thing is that the amount I earn isn’t fixed.

It can change as trading activity, liquidity and other pool conditions change.

Another detail I found important is how the fees are reflected.

The fees earned by LPs accrue to the pool rather than simply appearing as a separate “profit” balance in my wallet.

As the pool accumulates fees, the value of my liquidity position reflects my share.

So when I look at a liquidity position, I need to understand that the rewards are connected to the pool itself.

Then there’s farming, which is another way rewards can work.

At first, I thought providing liquidity and farming were basically the same thing.

They’re not.

When I provide liquidity, I can earn my share of eligible trading fees from the pool.

Farming adds another step.

If a pool has an active farming program, I may be able to stake my LP tokens and receive additional farming incentives.

So the process can look like this:

Provide liquidity

↓

Receive LP tokens

↓

Stake eligible LP tokens in a farm

↓

Earn additional farming rewards

The important word here is eligible.

Not every liquidity position automatically qualifies for farming, so I need to check the specific pool and its current incentives before assuming I’ll receive extra rewards.

This is also where I learned not to chase APR blindly.

A pool showing a high APR can look attractive at first.

But APR is only one part of the picture.

Before providing liquidity, I’d want to look at:

• Trading volume — how much swapping is happening • TVL — how much liquidity is already in the pool • APR — the estimated annualized return • Pool fees — how fees are distributed • The assets — what exactly am I depositing? • Farming incentives — is there an active farm? • Impermanent loss — what happens if the asset prices move apart?

Impermanent loss is especially important.

If the relative price of the two assets changes after I provide liquidity, my position can end up worth less than simply holding the two assets separately.

So a high APR doesn’t automatically mean I’m guaranteed to make a profit.

There are always risks to understand.

After breaking it down, liquidity pools stopped feeling so complicated to me.

The basic mechanism is:

I provide liquidity → traders use the pool → swaps generate fees → LPs receive their share.

And when an eligible farm is available:

LP tokens → stake → additional farming rewards.

What I like about understanding STON.fi this way is that I’m no longer looking at APR and thinking, “Where is this number even coming from?”

I can connect the reward to the actual activity happening inside the pool.

Of course, I’d still check the pool details, understand the assets involved and consider impermanent loss before depositing anything.

But once I understood how the pieces connect, liquidity providing started making a lot more sense to me.

That’s probably the biggest lesson I took from exploring STON.fi: understanding where the yield comes from is just as important as seeing the yield itself.

Official Resources:

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