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What Is the Point of the LP Pool Tokens?

What Is the Point of the LP Pool Tokens?

BornToBeHwild

3rd party apps can use your LP for different strategies to generate yield. If your deposit to LP staked immediately to Quickswap, this wouldn’t be possible. e.g. before iron finance went bust, you could stake the LP on quickswap to earn quick, or stake the LP on iron finance to earn titan. You could also stake the LP on an aggregator like beefy to autocompound


Ghola_Mentat

Thanks! Makes sense now. Going to try Beefy.


jmoney1945

What is the value of quickswap (or any DEX) LP tokens to 3rd party apps? What purpose do they serve for them


BornToBeHwild

The LP tokens indicate the ownership of the underlying deposits to the liquidity pool. Why that's important is that the rewards for an LP provider go to the holder of the LP token. In order for Beefy to autocompound, they have to hold the LP so they can take the rewards, convert it to more LP tokens, and redeposit (i.e. compound it). So, functionally, the third party app requires the LP token in order to do the compounding. Beefy and other autocompounders also typically charge a withdrawal or deposit fee. They levy this fee when the LP tokens switch owners. You give them 1 LP token. They autocompound it for some time and it now becomes 1.5 LP tokens. You want to withdraw, and they levy a 0.1% withdrawal fee, so you'll get back 1.4985 LP tokens and they keep 0.0015 as their fee for their service.


jmoney1945

Ok, so essentially they do this so they are able to take a fee from your deposit at some point


BornToBeHwild

No, the main reason is so they can compound your rewards.


CakePlus

Yeah pretty much what the other person said, the LP tokens are your property, and in this decentralized world it wouldn't make sense for the service you're providing liquidity for to take custody of your assets by default


The-Francois8

Big fan of beefy. They auto compound into more LP without my having to think about it. Their rates end up best or nearly best it seems also.