🪙LP Tokens

Understanding Liquidity Pools and LP Tokens in Crown Finance

What Happens When You Deposit Assets?

When you invest assets into a liquidity pool, it's not just a mere deposit. You're actually becoming a part of that pool. In return for your contribution, you receive LP tokens. Think of these tokens as your "proof of membership" in that pool.

The SEI<>USDC Pool: An Illustration

Let's consider the SEI<>USDC pool, labelled as 'Pool #1'. If you deposit SEI and USDC tokens into this pool, what you get back aren't just random tokens. You receive 'Pool1 share tokens'. It's essential to note that these share tokens aren't equivalent to a fixed amount of SEI or USDC. Instead, they signify your relative ownership or stake in Pool #1.

Withdrawing Your Contribution

When you decide to pull out or "withdraw" your contribution from the pool, you aren't taking out tokens based on their number. You're reclaiming the portion of the total pool that your LP tokens stand for. This ensures fair distribution based on your initial contribution and any changes in the pool's value during your participation.

But, Will I Get Back What I Put In?

Here's the catch! The dynamic nature of liquidity pools means that the exact amount of each token in the pool is constantly changing due to trading activities. Therefore, when you withdraw, you might notice that the tokens you get back don't mirror your original deposit. Typically, you might get more of one token and less of another, depending on the trading flow and demand in the pool.

In essence, diving into liquidity pools is about understanding the fluid nature of DeFi investments. Ensure you're always informed and equipped to make the most out of your Crown Finance journey.