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Providing Liquidity is the process of adding liquidity into an AMM by providing both sides of a trading pair and becoming a Liquidity Provider (LP). Element enables users to be liquidity providers for Principal Tokens.
The incentive of liquidity providers is that it allows users to earn trading fees on their supplied assets. For users who are buying discounted assets and staking, they will be earning a volatility dampened variable yield and AMM fees for providing liquidity.
For users who are minting Principal Tokens and then providing liquidity with their Principal Tokens, they will be earning variable interest yield (from holding the yield tokens) in addition to AMM fees for providing liquidity.
AMM stands for an automated market maker. AMMs allow users to supply liquidity towards a trading pair to earn passive income in the form of trading fees, or exchange between various paired assets. The AMM that Element uses is a decentralized AMM called Balancer and has been optimized to handle Element's principal tokens.
Slippage is an occurrence when traders have to settle for a price difference than what they were initially quoted or had requested due to a price movement.