LP token

An LP token is the ledger's record of a liquidity position. When you deposit both assets into an AMM pool, the pool issues you units representing your fraction of its total liquidity. Those units are your proof of ownership: burning them back into the pool returns your share of whatever the reserves hold at that moment.

The design makes fee accrual automatic. Swap fees are added to the pool's reserves rather than paid out per trade, so the assets backing each LP unit grow as the pool does business. A provider does not claim income transaction by transaction; the value accrues inside the claim itself and is realized on withdrawal.

What you get back is not what you put in. Redemption pays out at the pool's current reserve ratio, which trading will have shifted since your deposit; that shift is the source of impermanent loss, and the accumulated fees are its compensation. On Canton, pool positions are Daml contract holdings, so the same claim mechanics apply with the network's privacy and settlement guarantees around them.