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Liquidity provider

A liquidity provider is a man who invests his money (fiat or cryptocurrency) into a liquidity pool and is receiving passive income.

The liquidity provider is a part of DeFi sectors and services the liquidity pool. The liquidity pool can compare with currency exchanges where people can buy or sell foreign currency. But the liquidity pool works with cryptocurrency.

How it works:

Every liquidity pool needs a stock of money for exchange. And the liquidity provider gives it. For this, they get an interest income from every transaction. The main problem for liquidity providers is looking pool that works with many clients. It’s difficult because not all pools publish reports.

Additional passive income

Liquidity providers can earn more with Yield farming. It’s an additional way that helps the liquidity pools be sure that you won't take off money anytime. After a man became the provider, he gets loyalty points (LP-tokens). These tokens he can exchange into cryptocurrency (thus take off his investments) or put them in yield farming. It's a place where tokens freeze and you can’t take off it for a definite period of time. For this, you will get passive income. It looks like a long-term bank deposit.

Timeline

Further Resources

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