Liquidity Provider

Liquidity providers refer to the active participants who are responsible for offering funds to the liquid pool using their own tokens. DEXs take advantage of the liquidity pools to facilitate trades of assets with limited slippage.

Liquid providers also allow trades to be executed as long as the liquidity pool is big enough to back it up. That is why liquid providers are also known as trade facilitators. Liquid providers are incentivized with the transaction fees paid to enable the trades.

The earning of a liquidity provider directly correlates to the percentage of liquidity that is provided by them. While funding pools, liquidity providers need to fund two different assets in order to facilitate traders to switch between them.