TRADING & AMMS
Liquidity Provider (Liquidity Provider (LP))
Definition
A liquidity provider supplies assets to trading venues to facilitate trading. In DeFi, LPs deposit token pairs into AMM pools to earn trading fees and rewards.
Example
Example
You become an LP by depositing equal values of ETH and USDC into a Uniswap pool, earning 0.3% of all trading fees.
Risks to Consider
Risks
- Impermanent loss
- Smart contract risk
- Fee rate changes
