How it works
Liquidity providers deposit assets and may earn fees or incentives. Their economic result depends on token prices, trading activity and protocol design.
What to check
Check the assets in the pool, fee tier, incentive token and withdrawal rules. Understand how the pool prices assets and whether concentrated-liquidity ranges are involved.
- Inspect pool assets
- Separate fees from incentives
- Understand withdrawal conditions
Limits and risks
Fee income can be offset by token losses, impermanent loss or contract failure. High advertised yields can fall rapidly when incentives change.
Primary sources
Bitcoin Developer Reference↗Ethereum developer documentation↗FATF: Virtual Assets↗General information only. Investment products can lose value, and terms, fees and regulation can change.