Glossary
What is LP token?
An LP (liquidity-provider) token is a receipt a DEX gives you when you deposit into a liquidity pool; it represents your share of that pool.
When you add liquidity to a Uniswap-V2-style pool, the DEX mints LP tokens to your wallet in proportion to your deposit. Holding them entitles you to your share of the pool plus accrued trading fees; returning them lets you withdraw your assets.
Burning LP tokens locks that liquidity forever, which is why projects often burn them to signal that liquidity cannot be pulled. Uniswap V3 represents positions as NFTs rather than fungible LP tokens.
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Related terms
- Liquidity poolA liquidity pool is a smart contract holding two tokens that traders swap against; its balances set the price via an automated market maker formula.
- Token burningBurning permanently removes tokens from circulation by sending them to an address no one controls, lowering total supply for good.
- Uniswap V2Uniswap V2 is the constant-product AMM design where liquidity is spread evenly across all prices and providers receive fungible LP tokens.
- Uniswap V3Uniswap V3 introduced concentrated liquidity, letting providers commit capital to a specific price range and represent each position as an NFT.