LP Token
A token that represents your share of assets deposited into a decentralized exchange liquidity pool.
An LP token, or liquidity provider token, is a crypto token issued to someone who deposits assets into a liquidity pool, typically on a decentralized exchange. It acts like a receipt showing the depositor’s proportional claim on the pool. For example, if you add ETH and USDC to an ETH/USDC pool, the protocol may give you LP tokens that represent your share of that pool’s combined assets.
LP tokens matter because they let users withdraw their deposited funds later, along with any share of trading fees or rewards the pool earned, depending on the protocol’s rules. They can also sometimes be used in other DeFi apps, such as staking contracts or lending markets, which adds flexibility but also extra risk. Holding an LP token is not the same as simply holding the original assets: the value can change with market prices, trading activity, smart contract risk, and impermanent loss.
Other terms in DeFi
AMM
An automated market maker is a DeFi protocol that uses liquidity pools and algorithms to price and swap crypto assets without a traditional order book.
Aggregator
A DeFi service that searches multiple protocols to find better prices, routes, or yields for a user’s transaction.
DEX
A decentralized exchange is a crypto marketplace where users trade directly from their wallets using smart contracts instead of a central intermediary.
DeFi
A blockchain-based financial ecosystem that lets people lend, borrow, trade, and earn yield without traditional banks or brokers.