Liquidity Provider Tokens and How they work, Know here
Metaple Finance is an open and global financial system built for the Internet age. It is an alternative to a system that is indistinct, tightly controlled, and held together by decades-old infrastructure and processes.
There are many terms and applications in the world of cryptocurrency and DeFi. And since some of them are an integral part of our revolutionary DeFi projects thus it is obvious that before making an investment you should know about all the terms.
LP Tokens and Crypto Liquidity Providers
Automated market maker (AMM) platforms such as Metaple Finance, Curve, Balancer, and Uniswap, are known as a central aspect of the fast-growing decentralized finance (DeFi) ecosystem. Therefore, in general, it presents a novel approach to trading. The prominent function of the automated market maker platforms is termed the liquidity provider (LP) token.
These LP tokens enable AMMs to be non-custodial, which indicates that they don’t keep your tokens. However, despite operating through automated functions that promote decentralization and clarity. The tokens that are a liquidity provider also unlock new layers of token trade and access around the whole DeFi ecosystem. And this is why it has facilitated growth in the form of specific network effects.
How does the LP token emerge DeFi Liquidity?
Here, Liquidity is termed as the basic concept in the DeFi space. So, the term signifies how easily one asset can be transformed into another without a bizarre change happening in the price of assets. Inside, the traditional finance, cash can be seen as the most liquid asset, and the reason why you can easily transform it into stocks, gold, bonds, and other assets.
Although, cash cannot be easily exchanged into crypto. As far as the concern about crypto space, bitcoin (BTC) is apparently the most liquid asset and the reason why it's been accepted and tradeable on close to every centralized exchange. While in the DeFi ecosystem which is rarely built on the Ethereum network, ether is considered the most liquid asset because it is Ethereum’s native asset and can be enabled and tradeable on each decentralized exchange (DEX).
Later before the creation of liquidity provider tokens, all the assets being utilized under the Ethereum ecosystem were unavailable during their time of utilization. Normally, tokens are locked up once they are required to prop up, as a governance mechanism part. Such as Ethereum 2.0’s Proof - of - Stake (PoS) mechanism.
ETH will get locked for the motive to validate and include new blocks to Ethereum’s blockchain. For instance, once a token is staked, later it cannot be utilized for other things, which signifies that there is lesser liquidity across the system. Making simply exchangeable assets in AMMs in the form of LP tokens eliminates this issue of locked crypto liquidity - under DeFi.
Yield Farming with LP Tokens
The reason why DeFi is an insanely raising space, here the terms explaining the space are also regularly developing. LP tokens may be referred to in this article but can have other names relying upon the platform. Such examples are the Balancer protocol, these tokens are considered balancer pool tokens (BPT), or pool tokens.
Although, these two yield farming and LP tokens are new ideas, therefore they should be started to be used together. In order to understand the procedures, here are the steps to farming the CRV token on the Curve protocol through using DAI:
Deposit DAI to Curve’s crypto liquidity pool
Obtain LP tokens
Deposit received LP tokens to the Curve staking pool
Receive the CRV token.
In this circumstance, Your DAI would receive interest and fees in Curve’s crypto liquidity pool. Meanwhile, the token of LP from the liquidity pool obtains your CRV tokens a bounty for staking. Hence, through using LP tokens, your liquidity works become double-time receiving fees and farming works.
Metapal Finance uses an Automated Market Maker (AMM) approach and allows users to provide liquidity by adding their tokens to the liquidity pool. When you add your token to the Liquidity Pool (LP), you will receive Flip Tokens. To make the most of your time as a liquidity provider, you can work your FLIP tokens on Metapal Finance Farm to yield something new, while still earning your trading fee reward.
Check the official website of Metaple Finance to know more about the project and all the opportunities it possesses. The project has various features and products that make it worth investing in. So, visit https://metaple.finance and be a part of this revolution.
