Liquidity Provider Tokens: Incentives for Market Makers
Liquidity Provider Tokens or LP tokens are tokens issued to liquidity providers on a decentralised exchange (DEX) running the Automated Market Maker (AMM) protocol.
What are Liquidity Provider Tokens?
A liquidity provider token,LP or LP is the name of the exchange that issued to liquidity companies on an automated marketmaker (AMM) protocol. The system has been implemented for payments from liquidity suppliers by LiquidityProviderToken and LPTokens. Among the popular DEXs that issue LP-based liquidity to liquidity companies, Uniswap, Sushi and PancakeSwap are examples of most popular DEXs that issue LPLP tokens to their Liquidity Service.
Technically, LP tokens do not differ much from other tokens in the same network. For example, the LP tokens issued by Uniswap and Sushiswap on the Ethereum network are actually ERC20 tokens. Like any other ERC20 token, these LP tokens can be transferred, exchanged and hosted on other protocols.
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