StakePoint
Solana DeFi Glossary
Definitions of key terms used in Solana DeFi, token locking, LP locking, and staking. Published by the StakePoint team.
Liquidity Provider (LP)
A user who deposits tokens into a DEX liquidity pool to enable trading and earn fees.
Definition
A liquidity provider (LP) is a user who deposits tokens into a decentralised exchange liquidity pool. By providing liquidity, they enable others to trade against the pool and earn a proportional share of the trading fees generated.
To provide liquidity on most Solana DEXs, users must deposit two tokens in a specific ratio (determined by the current price). In return they receive LP tokens representing their share of the pool.
LP returns depend on trading volume and fee rates. High-volume pools generate more fees for providers. However, LPs also face impermanent loss risk if the prices of their deposited tokens diverge significantly.
StakePoint & Liquidity Provider (LP)
Liquidity providers who receive LP tokens from Raydium, Meteora, Orca, or PumpSwap pools can lock those LP tokens on StakePoint to signal commitment and reduce liquidity removal risk for investors.
Related Pages
Frequently Asked Questions
What is a liquidity provider?
A liquidity provider deposits tokens into a DEX pool to enable trading. In return they receive LP tokens and a share of trading fees generated by the pool.
Why would an LP lock their tokens?
Locking LP tokens provides on-chain proof that the liquidity cannot be withdrawn before the unlock date, which signals commitment to investors.
Related Terms
LP Token
A token representing a share of a liquidity pool on a decentralised exchange.
LP Locker
A smart contract that locks liquidity pool tokens on-chain until a set unlock date.
Liquidity Pool
A smart contract holding pairs of tokens that enables decentralised token trading.
Impermanent Loss
The temporary loss in value a liquidity provider experiences when token prices diverge from the deposit ratio.
DeFi Yield
Returns generated by providing liquidity, staking, or lending in decentralised finance protocols.