Liquidity Provider and LP Token
Entities supplying assets to DeFi pools for trading, receiving LP tokens as receipts for proportional rewards.
What is Liquidity Provider and LP Token?
Liquidity Providers (LPs) deposit equal-value token pairs into Automated Market Makers (AMMs) like Uniswap, enabling swaps and earning 0.3% fees—e.g., $10 billion daily volume yields $30 million rewards. LPs’ risks include smart contract hacks ($3 billion lost 2020-2024).
LP Tokens represent shares, redeemable for principal plus fees, with 50% of DeFi TVL from LPs in 2025. Tokens act as collateral for lending or staking, but impermanent loss erodes value if prices diverge—e.g., 5% ETH-USDC imbalance costs 2%.
Related Terms
Honeypot Contract
A deceptive smart contract designed to allow users to buy a digital asset but restrict or prevent selling, often used to trap unsuspecting investors.
Solana Foundation
A non-profit organization based in Zug, Switzerland, focused on fostering the decentralization, adoption, and security of the Solana blockchain ecosystem through grants, validator delegations, and global events.
Margin
The collateral or initial investment required to open and maintain a leveraged trading position in digital asset markets, amplifying potential profits and losses.
Memecoin
A digital asset inspired by internet memes or viral trends, driven by community hype rather than utility, and known for extreme price volatility.
Pre-negotiated Licensing Agreement
A pre-arranged contract for accessing resources with defined payment terms.
Loan-to-Value Ratio (LTV)
The ratio of a loan’s value to the value of its collateral in DeFi lending.