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Providing Liquidity
A liquidity pool (LP) is a pool of two tokens, e.g. LIF3 and USDC tokens. This pool is what allows users to exchange between the two tokens automatically using an AMM (Automated Market Maker). Investors can earn a share of the trading fees by adding liquidity to Lif3 by depositing a pair of tokens into the desired LP, receiving receipt LP tokens that represents their share of the liquidity pool. A portion of the dex's swap fees is distributed to the LP providers (proportional to each person's share of the pool) as incentive for providing liquidity. Thus, these representative LP tokens inherently appreciate with the swap fee accumulation, and they can be redeemed for the underlying assets at any time.
Last modified 10mo ago