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What Is a Liquidity Pool (LP) and How Is It Used in Yield Farming?

An LP is a token pair locked in a smart contract for trading; yield farmers deposit assets to earn trading fees and rewards.
Greeks.Live29.10.25

What Is a Liquidity Pool (LP) and How Is It Used in Yield Farming?

A Liquidity Pool is a collection of two or more tokens locked in a smart contract to facilitate decentralized trading on an Automated Market Maker (AMM) exchange. Yield farmers deposit their assets into these pools, becoming Liquidity Providers (LPs).

In return, they earn trading fees generated by the pool and often receive governance tokens as extra rewards.

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What Is the Role of a ‘Liquidity Provider’ in an AMM?
How Does ‘Liquidity Mining’ Differ from Standard Yield Farming?
How Do Liquidity Providers (LPs) in a DEX Earn Fees?

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