Liquidity Provider Tokens (LP Tokens)

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Liquidity Provider Tokens (LP Tokens)

What is Liquidity Provider Tokens (LP Tokens)?

Tokens known as liquidity provider (LP) tokens are distributed to liquidity providers on a decentralized exchange (DEX) that use the automated market maker (AMM) protocol. Some examples of well-known DEXs that provide LP tokens to their liquidity providers include Uniswap, Sushi, and PancakeSwap.
Since the number of LP tokens owned corresponds proportionally to the quantity of liquidity in the overall pool, LP tokens are used to track individual contributions to the liquidity pool.

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