A smart contract holding paired token reserves that enables trading. In a Uniswap V2-style pool, the first deposit mints sqrt(amount0 × amount1) minus the permanently locked minimum liquidity. Later deposits mint the smaller proportional amount: min(amount0 × total LP supply / reserve0, amount1 × total LP supply / reserve1). These LP tokens represent the provider's share of the reserves and accumulated trading fees; other pool designs may calculate shares differently.
AMM
Liquidity Pool
Related terms in AMM
Automated Market Maker (AMM)
A smart contract that holds token reserves and enables trading without an order book. Prices are determined al...
Constant Product Formula
The pricing invariant x * y = k, where x and y are token reserves and k is a constant. When one token is bough...
Liquidity Provider (LP)
A user who deposits tokens into a liquidity pool to facilitate trading, earning a share of trading fees in ret...
LP Token
A token minted to liquidity providers representing their share of a pool. LP tokens can be burned to withdraw ...