Automated Market Making
A currency like FUSE has come into existence and is able to function and hold its value very much thanks to the invention of automated market making (AMM). The existence of AMM is something to primarily be credited to projects such as Bancor and UniSwap who brought it to market on the Ethereum Blockchain. AnySwap where FUSE is traded is the first protocol to truly have brought AMM cross-chain. AMM bases itself on the constant product market formula x*y = c. In the Fusionite case this would be "FUSE" * "FSN" = m * "FUSE/FSN". Where m is a multiplier that's just a random number decided on the contract creation. It seems the Multiplier is around 168.5.
To be more precise using real numbers from the contracts right now, let's imagine you have 0.01 FUSE and provide liquidity. In this case you'd need to match your FUSE with 1737,61 FSN and would end up with 2927,49 FUSE/FSN. Here 1 FUSE is worth 173 761 FSN.
Now let's imagine that the value of FUSE went down so that it is only worth 100 000 FSN. In this case you would still have your 2927,49 FUSE/FSN but instead of being worth 0.01 FUSE + 1737,61 FSN it'd be worth 0.0173761 FUSE + 1 000 FSN (Total FSN value 2000 FSN, while total FSN value if original stake was simply held would be 2313,11 FSN).
If the value of FUSE instead went up so that 1 FUSE was worth 250 000 FSN your 2927,49 FUSE/FSN would be worth 0.00695044 FUSE + 2500 FSN. (Total FSN value 5000 FSN, while total FSN value if original stake was simply held would be 5334,5 FSN)
In both cases the total value could be considered less than what was started with under the same changes in value. This is what's generally known as impairment loss. However, the above numbers, assume a pure constant market formula and the FUSE/FSN pool (as well as all pools on AnySwap) will also collect a 0,3% fee on every trade in the purchasing currency. So, if someone sells FUSE the value of your FUSE/FSN pool will grow by 0,3% of the sold amount in FUSE and if someone buys FUSE the value of your FUSE/FSN will grow by 0,3% of the bought amount in FSN. In this way "FUSE/FSN" will always grow in value as long as it's the subject of active trading.
In addition to this liquidity providers of FUSE/FSN are rewarded in ANY. Overall it should definatly be more lucarative than simply hodling.
Worth noting here is also that one Fusionite goal is to have its value fused to FSN with a very high level of liquidity. In practise this means that the value is unlikely to change drastically against FSN, which in turn avoids the issue of impairment loss entierly.