Unleash the power of your liquidity
So we all know about LP’s. We deposit 2 or more tokens into a smart contract and receive an LP token as a receipt of that deposit. A more detailed explanation is:
An LP token in crypto refers to a Liquidity Provider token. LP tokens are commonly used in decentralized exchanges (DEXs) and automated market maker (AMM) protocols to represent the liquidity provided by users to a liquidity pool.
When you provide liquidity to a liquidity pool on a DEX or AMM, you are essentially depositing a proportional amount of two different tokens into the pool. For example, if you provide liquidity to a pool for trading Token A and Token B, you would need to provide an equal value of both tokens.
In return for providing liquidity, the DEX or AMM platform issues you LP tokens, which represent your share of the liquidity pool. These LP tokens can be staked or held, and they represent your ownership of the pooled tokens in the liquidity pool.
LP tokens are useful because they allow liquidity providers to easily withdraw their share of the liquidity pool at any time. When you want to exit the liquidity pool and withdraw your tokens, you simply burn (destroy) your LP tokens, and in return, you receive the corresponding proportion of the pooled tokens.
LP tokens enable decentralized liquidity provision and enable users to earn trading fees and incentives for providing liquidity to the platform. They play a crucial role in enabling the efficient functioning of decentralized exchanges and automated market makers in the crypto space.
A visual example of this is:
A common next step is to “deposit” your LP token into a “farm”. The farm then rewards “farmers” with a reward of some form. The reward is usually a token that has value. The reward incentives the LP holder to continue to hold the LP longer. The LP creates a healthy liquidity pool for the underlying assets, and benefits the holder and traders of the underlying assets. There are also risks involved with LP farming. A more detailed explanation of an LP farm follows here:
An LP (Liquidity Provider) farm, also known as a liquidity farm or yield farm, is a decentralized finance (DeFi) concept and platform that allows users to earn rewards by providing liquidity to a liquidity pool on a decentralized exchange (DEX) or an automated market maker (AMM) protocol.
Here’s how an LP farm typically works:
1. Liquidity Pool: An LP farm is based on a liquidity pool, which is a smart contract that holds a reserve of two different tokens. For example, in a simple LP farm, it could be Token A and Token B.
2. Providing Liquidity: Users participate in the LP farm by providing an equal value of both tokens to the liquidity pool. This action is known as “providing liquidity” or “staking.” By doing so, they become LP providers and receive LP tokens in return. These LP tokens represent their share of the liquidity pool.
3. Yield Generation: When users provide liquidity, they are essentially contributing to the trading pairs’ liquidity, which facilitates smooth trades on the DEX or AMM. In return for providing liquidity, users earn rewards in the form of additional tokens or fees collected from trades conducted on the platform.
4. Farming Rewards: The rewards in an LP farm can come from various sources:
— Trading fees: Whenever trades occur on the DEX or AMM, a small fee is charged to traders. These fees are distributed among LP providers as rewards for their participation.
— Platform tokens: Some LP farms also distribute the platform’s native tokens as rewards to LP providers. These tokens often have governance and utility functions within the ecosystem.
— Incentives: Projects and DeFi platforms might offer additional incentives to attract liquidity providers to their LP farms. These can be in the form of additional tokens, staking bonuses, or other benefits.
5. Harvesting Rewards: Users can “harvest” their earned rewards by withdrawing their liquidity from the LP farm and burning (destroying) their LP tokens. By doing so, they receive their proportionate share of the rewards earned during their participation.
It’s essential to note that LP farming involves risks. The value of the tokens in the liquidity pool can fluctuate, impacting the value of LP tokens and potential rewards. Additionally, LP farming can be subject to smart contract risks and impermanent loss, which is a temporary loss in value when the price of the pooled tokens changes significantly.
LP farming has gained popularity in the DeFi space due to the potential for high yields, but it’s crucial for users to research and understand the risks associated with each LP farm and the underlying tokens before participating. A visual example is:
Usually the story ends here. The user provides the assets to obtain an LP, then the LP is placed in a farm to obtain rewards for providing the liquidity. But, what if we add another layer of utility to the equation. Enter Entangle Protocol.
When you stake your LP through Entangle, your LP token goes to work for you. First, Entangle stakes your token in a yield farm and auto-compounds your rewards. But that's not all. Entangle then issues you an LSD token, which you can use to find other defi opportunities.
What is an LSD token and how does it work? The Liquid Vaults dApp provides access to cross-chain LP provisioning yields from any chain through a subset of Internal DEXes on each chain within the Entangle Framework.
Liquid Vaults are Liquid Staking Derivatives (LSD) minted 1:1 based on held Liquidity Pool Vaults on another chain, where prices of Liquid Vaults are pegged to the underlying Liquidity Pool Vaults.
Liquid Vaults can be representations of underlying Liquidity Pool Vaults such as
*Liquidity Pools on DEXes (for example AVAX/USDC pair on TraderJoe)
*Lending & Borrowing Pools (for example USDC lending & borrowing pool on AAVE)
*Staked Tokens (for example staked stETH)
The amount of Liquid Vaults are “finite”, meaning that even if the amount of Liquidity Pool Vault Tokens rises in amount due to auto-compounding, no new Liquid Vaults Tokens are minted.
Additional Liquid Vault Tokens can only be minted on the base of additional new Liquidity Pool Vaults Tokens obtained.
What can Users do with their LSD tokens?
- Deposit into any desired Liquidity Pool Vault on any Chain from any Chain in one click
- Save time on auto-compounding, and skip multitudes of transactions, bridges and fees
- Earn LP fees through the price-accrual of Liquid Vaults
- Achieve Capital Efficiency:
- Liquid Vaults can be staked to derivatives protocols.
- Provide Liquid Vaults to lending & borrowing protocols
A visual look at the uses of your LSD token:
As you can see, Entangle Protocol takes your simple LP token, and super-charges it. This is the future of defi, and Entangle Protocol is bringing the future to you. Be part of this revolutionary technology at
Website: https://www.entangle.fi/
Discord: https://discord.gg/entanglefi
Twitter (X): https://twitter.com/Entanglefi?s=20
Join their testnet, and experience the future of defi.