Sumero
  • Introducing Sumero
  • Welcome
    • Getting Started
  • Using Sumero
    • Synthetic Asset Positions Dashboard
    • Approved Synthetic Assets
      • NLHPI
      • VT
      • USCPI
    • Liquidity Provision
      • Liquidity Pools
      • LP Tokens
      • Providing Liquidity
      • Withdrawing Liquidity
      • Pool Fee Distribution
      • Risks
    • Staking
      • Liquidity Mining
      • Staking LP Tokens
      • Unstaking LP Tokens
      • Claiming Rewards
    • zClay Bonds
      • Lending Clay
      • Bond Maturation Schedule
      • Claim Bonds
  • Frequently Asked Questions
    • FAQ Sections
      • About Sumero Protocol & Global Access Labs
      • Trading
      • Fees
      • Collateral
      • Liquidity Provision
      • Oracles
      • Clay
      • zClay Bonds
      • cSynths (Synthetic Assets)
  • Tokenomics
    • Clay Token
      • Buying Clay
      • Selling Clay
      • Clay Issuance Schedule
  • Overview
    • The Sumero Ecosystem
    • Technical Overview
      • Expiring Multi Party
      • Priceless Position Manager
      • Liquidatable
      • Optimistic Oracle
      • Fees
  • Contracts
    • Addresses
  • Security
    • Audits
  • Resources
    • Network Information
    • Glossary of Terms
    • About The Team
    • Additional Links
  • dApp
  • Sumero Website
  • GitHub
Powered by GitBook
On this page

Was this helpful?

  1. Using Sumero
  2. Liquidity Provision

LP Tokens

What are LP tokens?

PreviousLiquidity PoolsNextProviding Liquidity

Last updated 2 years ago

Was this helpful?

Key Points:

  • Liquidity pool tokens (also known as liquidity provider tokens) are given to users who provide liquidity in liquidity pools. These tokens act as a receipt, allowing you to claim your original stake and interest earned.

  • You can also use your LP tokens to compound interest in a yield farm, take out crypto loans, or transfer ownership of the staked liquidity. However, it is important to understand that you don't actually own the associated liquidity once you give up custody of your LP tokens.

For automated market makers (AMMs) like SumSwap to function, liquidity providers must contribute assets to liquidity pools. When tokens are deposited into a crypto liquidity pool, the platform automatically generates a new token that represents the share the depositor owns of that pool. This token acts as a 'receipt' for your underlying share of the pool based on the amount of assets you provided. This is called a liquidity provider (LP) token, and it can be used for a multitude of functions both within its native platform and other decentralized finance (DeFi) apps. These LP tokens allow you to retrieve your original deposit plus any interest gained. You'll find your LP tokens in the wallet you used when providing liquidity. You may need to add the LP token’s address to see it in your .

LP tokens allow AMMs to be , meaning they do not hold on to your tokens, but instead operate via automated functions that promote decentralization and fairness. Liquidity provider tokens also unlock new layers of token trade and access across the entire DeFi ecosystem, which has facilitated growth in the form of significant network effects. This has the effect of multiplying the liquidity available in the DeFi ecosystem.

The non-custodial feature of AMM platforms is key to being part of the decentralized finance ecosystem. On AMM platforms, you remain in control of your assets by receiving LP tokens in return for providing tokens like to the crypto , which is managed by code and not by human operation. LP tokens represent a crypto liquidity provider’s share of a pool, and the crypto liquidity provider remains entirely in control of the token. Holding these LP tokens allows you total control over when you withdraw your share of the pool without interference from anyone. And since LP tokens are , they can be transferred, exchanged, and even on other protocols.

Sumero LP Tokens

In exchange for depositing assets into a Sumero pool, liquidity providers receive the corresponding pool LP tokens. A Sumero pool LP token is an ERC20 contract specific to each Sumero pool. Hence, LP tokens are transferrable. Holders of Sumero LP tokens may stake the token into a pool’s in order to receive Clay token rewards.

smart contract
crypto wallet
non-custodial
ether (ETH)
liquidity pool
ERC-20 tokens
staked
staking pool