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Home/Glossary/Liquidity provider (LP)
DeFi

Liquidity provider (LP)

Also called: LP · LP token

In shortSomeone who deposits tokens into a liquidity pool to earn a share of the trading fees.

In return you get an "LP token" (or position NFT) representing your share of the pool. Fees are the reward; impermanent loss is the main risk.

← Liquidity poolAll terms A–ZLong (going long) →

Related terms

  • Liquidity poolA pot of tokens locked in a smart contract that traders swap against on a DEX.
  • Automated market maker (AMM)A type of DEX that prices trades with a formula based on the tokens in a liquidity pool, instead of an order book.
  • Impermanent lossThe loss a liquidity provider suffers compared with simply holding the tokens, when their prices drift apart.
  • Yield farmingMoving crypto between DeFi protocols to earn the highest possible rewards.
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