Liquidity provider

A liquidity provider is the supply side of an AMM. By depositing both assets of a pair into a pool, a provider deepens the reserves that traders swap against. In return, the provider owns a proportional share of the pool, which entitles them to the same share of every swap fee the pool collects for as long as the position stays open.

The position is recorded as LP tokens, a claim on the pool that grows in value as fees accumulate in the reserves. Withdrawing means redeeming that claim for the underlying assets at the pool's current ratio, which is generally different from the deposit ratio because trading has moved the reserves in between.

The economics are a balance of fee income against impermanent loss. Fees accrue with volume; impermanent loss accrues with price divergence between the two assets. A provider profits when the first outruns the second, which is more likely in pools with steady volume or closely correlated assets.

On OneSwap, providing liquidity to a Canton pool means holding exposure to both assets in the pair. The trade catalog publishes the fee tier, TVL, and recorded activity a prospective provider needs to judge the trade-off.