LP tokens have multiple use cases beyond representing one’s assets, including being used as collateral in loans, yield farming, and LP staking. These tokens gain value as a fundamental component of DeFi, contributing to the smooth operation of DEXs and AMMs. Passive income for liquidity providers comes from transaction-generated fees earned by the liquidity pool in proportion to their investment share.
– LP tokens have various use cases beyond representing one’s assets.
– These tokens gain value as a fundamental component of DeFi.
– Passive income for liquidity providers comes from transaction-generated fees earned by the liquidity pool in proportion to their investment share.
Key points:
– LP tokens can be used as collateral in loans, but this is still an emerging trend and only a few platforms offer the service.
– Yield farming involves depositing LP tokens in a yield farm or compounder to earn rewards, and users can use different compound strategies according to the effort and time they want to dedicate to this type of investment.
– LP staking allows liquidity providers to stake their LP tokens in exchange for rewards of new tokens, and early stakers in a project can earn a very high APY.
– LP tokens function the same way as other tokens supported by a blockchain network, such as ERC-20 tokens.
