LP
Last updated 17 October 2026Last verified 17 October 2026
What is an LP (Liquidity Provider)?
Liquidity Provider. A user who deposits assets into an AMM pool in exchange for a share of trading fees. LPs bear impermanent loss risk, smart-contract risk, and the risk of the protocol itself being exploited. Fee income must exceed impermanent loss plus the opportunity cost of alternative deployments to be economically rational.
TradFi equivalentA limited partner in a market-making book rather than the trader running it. Capital is committed, a formula quotes on its behalf, and the fee income only counts as a return once it clears adverse selection and the yield foregone elsewhere.