What the term LP Tokens in Dexe Investment Really Means
Hello web3 friends you might have heard about the term staking or farming? A way of earning rewards on your crypto assets rather than just holding and decentralized finance (DeFi) made this possible
But in Dexe Network as a liquidity provider you must pool your resources. And you receive liquidity provider (LP) tokens once you sign up as a liquidity provider.
Some might be wondering what LP Tokens really are ?
LP tokens also known as Liquidity provider (LP) tokens (on occasion called liquidity pool tokens) are going to be tokens naturally produced by a DEX and gave to a liquidity provider once they contribute assets for a liquidity pool. These tokens address one’s portion of the expenses acquired by the liquidity pool. An LP token is a crypto token given to users who loan their crypto to a liquidity pool. The LP tokens represent a user’s share of the pool and can always be redeemed for the original tokens.
How Liquidity Provider Tokens Work?
As you might know already
decentralized finance has become a topic of global attention with the promises of bringing a big revolution to finance. For example, decentralized exchanges or DEXs based on Ethereum blockchain have evolved as interesting means for exchanging crypto without stress that sounds
cool right. Based on statistics within just a year, more than $100 billion of cryptocurrency is locked in DeFi protocols.
As of now, the most successful decentralized exchange is Uniswap, which has more than $9 billion of crypto assets as stakes for liquidity. What does liquidity have to do with DeFi? Do you know how liquidity provider tokens work? All of these questions are obvious for any individual trying to explore the practical use cases of DeFi. The following discussion will help you understand the working of liquidity providers and liquidity provider tokens or LP tokens comprehensively.
The liquidity provider tokens or LP tokens are a mandatory highlight of new DEXs based on the Automated Market Maker System. They ensure that AMMs are non-custodial. So, you can notice that LP tokens work without allocating the control of your crypto assets to the DEX. On the contrary, LP tokens work through automated functions, which can drive fairness and decentralization.
How to Get LP Tokens
Here are some easy ways on getting liquidity provider tokens and they are as follows
Yield Farming
Yield farming is a system where users can deposit cryptocurrency in a pool with other cryptocurrency users to pursue investment gains, most typically through interest earned by lending the pooled cryptocurrency. 1 Yield farming is a very risky strategy with potential for high rewards.
You can get LP tokens from yeild farming from investing your assets in the farming pool and getting LP tokens are rewards
Staking
Staking is another way of getting liquidity provider tokens from staking your crypto assets. When staking tokens by the Proof-of-Stake investment model, you are providing liquidity to the DEX/platform. Staking on every platform is different in the amount of time that is required to stake. Sometimes there is the option to pull your tokens at any time.
The concept of LP tokens in Dexe investment
Sliding back into Dexe investment,
LP tokens in DeXe investment is slightly different from the LP tokens generally known !
Traditionally, the liquidity provider adds the tokens 50–50 or in another extent and gets various LP tokens proportionate to his portion of the liquidity pool. Indeed, even while the equilibrium of tokens within the pool is offset with the changes in costs of each crypto in the pair, the number of LP tokens the liquidity supplier holds continues as before.
In DeXe Investments, the investor gets LP tokens for underwriting an asset and gets to partake within the asset’s benefits in the same proportion
Thanks alot for visiting my blog and a big appreciation to my reference materials that inspired me to write my blog
1. https://www.benzinga.com/money/how-liquidity-provider-tokens-work
2. https://link.medium.com/UDzcXpzfkvb
For more information about Dexe Network, visit
Website:https://dexe.network/
Discord:https://discord.gg/euhDRR55Ed
Telegram:https://t.me/dexe_network_official_chat
Twitter:https://twitter.com/DexeNetwork
