🤠Who is a Liquidity Provider (LP)

A liquidity provider, or LP for short, helps make trading possible on decentralized exchanges like Uniswap.

Imagine you have some toys that you want to trade with your friends. You and your friends can put your toys together and make a big pool of toys. Then, when someone wants to trade a toy with someone else, they can take a toy from the collection and put a different toy back in its place.

In the same way, on Uniswap, the most popular Automated Market Maker (AMM), people trade cryptocurrencies with each other by putting them into a big pool with everyone else's. Liquidity providers are the people who put their cryptocurrencies into these pools so that other people can trade with them.

When you put your cryptocurrency into a pool, you become a liquidity provider. You are helping to provide the liquidity, or the ability to buy and sell cryptocurrencies, on Uniswap.

In return for providing liquidity, liquidity pool providers earn a share of the trading fees generated when people buy or sell assets in the pool. The more the pool users use to trade across the pair of tokens, the more trading fees there are, so liquidity pool providers are incentivized to contribute as much as possible to the pool.