Single-Sided Liquidity
A liquidity provision model where only one token is deposited, with the protocol automatically managing the paired position.
Single-Sided Liquidity — Single-sided liquidity allows users to deposit only one token into a liquidity pool instead of the traditional requirement of providing two tokens in equal value. This lowers the barrier to entry for liquidity providers and reduces exposure to impermanent loss on the non-deposited asset.
What Is Single-Sided Liquidity?
In a standard AMM pool, a liquidity provider must deposit two tokens in equal dollar value — for example, ETH and USDC. Single-sided liquidity mechanisms allow depositing just one asset. The protocol either internally pairs it with the second token or uses a virtual reserve model.
Protocols like Bancor, THORChain, and some concentrated liquidity vaults support single-sided deposits, simplifying the LP experience for users who hold only one asset.
How Single-Sided Liquidity Works
The protocol accepts a single-token deposit and either swaps half into the paired token behind the scenes or uses protocol-owned reserves to balance the pool. In concentrated liquidity DEXs, a provider can also set a range entirely above or below the current price, effectively depositing only one token until the price enters that range.
Some protocols use insurance funds or protocol-owned liquidity to absorb the impermanent loss that would otherwise fall on single-sided depositors.
Why Single-Sided Liquidity Matters
Single-sided deposits remove the complexity of acquiring a second token and managing a balanced position. This makes liquidity provision accessible to more users and increases the total capital available to DEX pools.
Related Terms
Liquidity Pool
A smart contract holding two or more tokens that traders swap against, funded by liquidity providers who earn fees.
Read definition DeFi & AMMLiquidity Provider (LP)
An individual or entity that deposits token pairs into a liquidity pool in exchange for trading fee rewards.
Read definition DeFi & AMMImpermanent Loss
The temporary loss in value that liquidity providers experience when the price ratio of pooled tokens changes relative to simply holding them.
Read definition DeFi & AMMProtocol-Owned Liquidity (POL)
Liquidity owned by a DAO or protocol treasury rather than external LPs, ensuring permanent liquidity without incentive dependence.
Read definitionFrequently Asked Questions
Common questions about Single-Sided Liquidity in cryptocurrency and DeFi.
No. While it reduces complexity, single-sided LPs can still face impermanent loss, smart contract risk, and potential losses if the protocol's insurance mechanism is depleted.
Bancor V3, THORChain, and several concentrated liquidity vault managers support single-sided deposits. Some Uniswap V3 range orders also function as single-sided liquidity.
Fee earnings depend on the protocol's design. In some cases, single-sided depositors earn slightly lower returns because the protocol takes a share to fund impermanent loss protection.
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