# Liquidity Pools

## Introduction

Liquidity pools are essential components of the Yuzu platform, allowing users to provide liquidity and earn rewards. This document explains the mechanics of Liquidity Pools and the associated benefits and risks.

## LP Tokens (Liquidity Provider Tokens)

### Definition and Function

LP tokens are issued to users who deposit assets into liquidity pools. They serve as a receipt, representing the user's share in the pool and entitling them to a portion of the trading fees generated.

### Example

> If you deposit $YUZU and $MOVE into a pool, you receive YUZU-MOVE LP tokens, which represent your share in the YUZU-MOVE Liquidity Pool. These tokens can be redeemed to withdraw your original stake and earned interest.

## Earning from Trading Fees

### How it Works

As a liquidity provider, you earn a portion of the trading fees generated from your pool.

In Yuzu, a **0.90**% trading fee is charged on swaps, with **0.30%** of that fee added to the liquidity pool involved in the trade.

### Example

> Consider a pool with 10 LP tokens representing 10 $YUZU and 10 $MOVE each.
>
> * A trade occurs, and the pool's assets grow to 10.030 $YUZU and 10.030 $MOVE.
> * Each LP token's value increases correspondingly.

## Benefits of Providing Liquidity

### Importance for the Exchange

Liquidity is vital for enabling asset swaps on Yuzu. Insufficient liquidity can make swaps difficult, expensive, or impossible.

By providing liquidity, you facilitate trading and earn rewards from trading fees.

### Stability and Sustainability

A robust liquidity pool enhances asset stability and mitigates price impact during trading.

### Earnings Sources for LP Providers

LP providers earn from:

* The **0.3%** trading fee from each pair trade.

### Impermanent Loss

{% hint style="danger" %}
Providing liquidity comes with the risk of impermanent loss, which occurs when the price of your deposited assets changes compared to when you deposited them. This is an important consideration for all potential liquidity providers.
{% endhint %}

\
[“Simply put, impermanent loss is the difference between holding tokens in an AMM and holding them in your wallet.” - Nate Hindman](https://blog.bancor.network/beginners-guide-to-getting-rekt-by-impermanent-loss-7c9510cb2f22)


---

# Agent Instructions: Querying This Documentation

If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://docs.yuzu.finance/products/exchange/liquidity-pools.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.