![]() However, cash is not easily converted to crypto. In traditional finance, cash is seen as the most liquid asset, because you can easily exchange it for gold, stocks, bonds, and other assets. The term refers to how easily one asset can be converted to another without causing a drastic change in the asset's price. Liquidity is a fundamental concept in the DeFi space. And since LP tokens are ERC-20 tokens, they can be transferred, exchanged, and even staked on other protocols. Holding these LP tokens allows you total control over when you withdraw your share of the pool without interference from anyone - even the Balancer platform. The LP tokens become your claim to your share of the pool’s assets. You receive 10% of the LP tokens because you own 10% of the crypto liquidity pool. LP tokens represent a crypto liquidity provider’s share of a pool, and the crypto liquidity provider remains entirely in control of the token.įor example, if you contribute $10 USD worth of assets to a Balancer pool that has a total worth of $100, you would receive 10% of that pool’s LP tokens. #Token farms code#On AMM platforms, you remain in control of your assets by receiving LP tokens in return for providing tokens like ether (ETH) to the crypto liquidity pool, which is managed by code and not by human operation. The non-custodial feature of AMM platforms is key to being part of the decentralized finance ecosystem. Liquidity provider tokens also unlock new layers of token trade and access across the entire DeFi ecosystem, which has facilitated growth in the form of significant network effects. LP tokens allow AMMs to be non-custodial, meaning they do not hold on to your tokens, but instead operate via automated functions that promote decentralization and fairness. A key function of automated market maker platforms is the liquidity provider (LP) token. LP Tokens and Crypto Liquidity ProvidersĪutomated market maker (AMM) platforms like Uniswap, Curve, and Balancer are a central aspect of the fast-growing decentralized finance (DeFi) ecosystem, and present a novel approach to trading in general. ![]()
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