GlossaryIntermediate
Liquidity Provider
Someone who deposits assets into a liquidity pool, usually in exchange for a share of fees.
A liquidity provider deposits a pair or set of tokens into a liquidity pool, enabling other users to trade against that pool. In exchange, the provider typically earns a share of the trading fees generated.
Providing liquidity carries its own risks, including impermanent loss (see Kaavon's "Impermanent Loss" glossary definition), which can offset or exceed the fees earned depending on how the pooled assets' prices move relative to each other.
Examples
- A liquidity provider might deposit equal values of two tokens into a pool to start earning fees.
- Liquidity providers should understand impermanent loss before depositing into a pool.