Liquidity Provider (LP)

What Is a Liquidity Provider?

A liquidity provider (LP) is someone who puts liquidity (funds) into a decentralised exchange (DEX). They are usually an individual or a group that funds a liquidity pool in decentralised finance (DeFi) with their own cryptocurrency assets in exchange for certain rewards. 

Typically, the rewards come in the form of other tokens or transaction fees generated by the trades on the platform. The transaction fees are denominated in interest rates and vary in proportion to the total liquidity supplied to the pool.

Key Takeaway

A liquidity provider (LP) is a user who commits their cryptocurrency to a liquidity pool.

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