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Author: Admin | 2025-04-27
Liquidity provider tokens are not the same as UNI governance tokens, which are used to vote on new proposals and other forms of decentralized decision-making.SushiSwap: SushiSwap liquidity providers receive ERC-20 SushiSwap Liquidity Provider (SLP) tokens associated with the specific asset they have deposited. For instance, if a user deposits DAI and ETH into a pool, they will receive DAI-ETH SLP tokens. These SLP tokens can then be deposited into a designated DAI-ETH SLP liquidity pool to generate SUSHI, SushiSwap’s platform governance token.Curve: Liquidity providers leveraging the AMM Curve receive a token-specific LP token rather than an LP token tied to a trading pair. For instance, if a user lends ETH to the Compound DeFi platform, it is exchanged for a liquidity token called cETH, which automatically accumulates interest for the holder. In addition to allowing Curve’s crypto liquidity providers the right to withdraw their ETH plus interest from Compound, Curve users are able to stake their cETH in other liquidity pools to generate passive yields and CRV (Curve’s governance token). These LP tokens thereby allow users to achieve an additional layer of utility and potential profits from their initial investment.Balancer: Balancer is an AMM protocol that enables liquidity pools made up of multiple unevenly weighted assets. Like many of the examples above, Balancer liquidity tokens — called balancer pool tokens (BPT) — are ERC-20 tokens that are composable across the broader Ethereum DeFi ecosystem. However, given Balancer’s unique multi-asset pool configuration, BPT tokens are underpinned by a basket of crypto assets. Some projects that are built on top of Balancer pools require users to stake BPT tokens to earn rewards.Kyber Network: Kyber Network aggregates liquidity from a variety of reserves, including token holders, market makers, and DEXs, into a single liquidity pool on its network. Liquidity providers in Kyber’s Dynamic Market Maker (DMM) protocol receive DMM LP tokens representing their liquidity pool share. These DMM tokens can then be staked in eligible liquidity mining pools to earn KNC or MATIC (Kyber’s and Polygon’s respective governance tokens) on top of protocol fees earned through the staking program.LP Tokens Are More Than CollateralAs the above examples illustrate, LP tokens can serve many purposes across the DeFi ecosystem (including via a DEX, an AMM, or a DEX aggregator). While LP tokens are not specifically designed to be traded or sold, many open up new avenues for additional earnings, and DeFi users should weigh the utility of a platform’s LP token against its alternatives whenever they decide which DeFi products and services to use.Decentralized liquidity pools are essential to the proper functioning and growth of DeFi platforms. Succeeding in the financial industry generally requires effective ways to leverage existing capital, and to that end,
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