LP token Meaning in Crypto, Explained Simply

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By the Orca Crypto teamUpdated 2026-09-28How we check this3 min readDefinition

Definition

A receipt proving your share of a liquidity pool.

When you deposit into a pool you receive LP tokens representing your proportion of it. Burn them to withdraw your share plus accumulated fees.

LP tokens are themselves assets. They can be staked for extra rewards or used as collateral, which is where DeFi starts stacking risk on risk.

In practice

Losing your LP tokens means losing the claim on your deposit. They are not just a receipt, they are the ownership.

What people get wrong

That an LP token is a receipt you can file away. It is the claim on your deposit, so losing it loses the position, and handing it to a contract hands over the pool share. Locked or burned LP tokens are also what makes a pool hard to rug, which is why the question comes up.

Common questions

What happens if I lose my LP token?

You lose the claim on the pool. The token is the receipt, so whoever holds it can withdraw the underlying assets. Treat it exactly as carefully as the assets it represents.

Can I do anything else with an LP token?

Often yes. Many protocols let you stake it for extra rewards or borrow against it. Every extra layer is another contract that can fail while holding your position.

Where this comes up on the site

The guides that actually use this word, rather than a list of everything we have written.

Providing liquidity: your first poolIntermediate · DeFi, used well Smart contract vulnerability classesExpert · Security and mechanism design

Where to go next

Liquidity poolA shared pot of two tokens that traders swap against.Yield farmingMoving capital between protocols to chase the highest available return.Impermanent lossThe gap between providing liquidity and simply holding the two assets.

More defi terms

AMM Bonding curve Bridge Burn CEX DAO DEX DeFi Depeg Farming Flash loan Governance token

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