A token minted to liquidity providers representing their share of a pool. LP tokens can be burned to withdraw the underlying tokens plus accumulated fees. The first depositor's LP token amount is calculated using the geometric mean (sqrt) of the deposit amounts.
AMM
LP Token
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 Pool
A smart contract holding paired token reserves that enables trading. Liquidity providers deposit equal value o...
Liquidity Provider (LP)
A user who deposits tokens into a liquidity pool to facilitate trading, earning a share of trading fees in ret...