DeFi & Yield

What is a liquidity provider (LP) token?

A liquidity provider (LP) token is a receipt a DeFi protocol issues when you deposit assets into a liquidity pool, representing your proportional share of that pool. It records how much you contributed and entitles you to redeem your share plus accrued fees when you withdraw. For example, deposit into an ETH-stablecoin pool and you receive LP tokens equal to your slice of the total; burn them later to reclaim the underlying assets. Some protocols let you stake LP tokens elsewhere for additional incentives, which compounds both opportunity and exposure.