Projects weigh security risks, benefits of liquidity pool token collateral

Cointelegraph

Published Jan 19, 2021 05:20PM ET

Updated Jan 19, 2021 07:00PM ET

Multiple decentralized finance (DeFi) projects are moving forward with plans to allow liquidity provider tokens as collateral for stablecoin and lending services — though experts caution that the security considerations associated with using LP tokens in this manner can be complex.

LP tokens are distributed to liquidity providers on automated market makers (AMMs) to represent a provider’s stake in a liquidity pool. Providers are incentivized with trading and protocol fees that are paid out upon withdrawal.

h3 Another step in the cycle/h3 h3 Extra risks/h3 h3 More liquidity, more security/h3

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