An LP token represents a user’s share in a liquidity pool. This is an important concept that warrants a detailed explanation so that everyone can fully understand what it means to hold an LP token. An LP token is not a standalone asset, but rather a proportional ownership stake in a pool.
Those who provide liquidity contribute value to the pool in the form of, for example, Mosaic Coin and USDC. However, the ratio is constantly changing, as swaps are continuously taking place within the pool.
This is why the LP token is necessary: it does not represent Mosaic Coin and USDC separately, but rather a share of the entire pool. Fees generated in the pool are also distributed to LP token holders. Under the current model, the swap fee is 0.3%, which is distributed in full, on a pro-rata basis, to LP token holders. It is this fee revenue that makes providing liquidity attractive, as liquidity providers benefit from the pool’s trading volume.
As long as the user holds the LP token, its value contributes to the pool. If a user withdraws liquidity, the LP token is redeemed, and the user receives the two underlying tokens back according to the current ratios. The amount received back therefore depends on the pool’s ratio at that moment, so you do not receive the exact amount you deposited, but rather the current value.
The two-year lock-up period also allowed the partner to receive 40% of the LP package’s purchase price—with a plus/minus variance depending on the exchange rate—back in the form of LP tokens after the maturity date. For LP3 packages, minting occurs continuously as staking periods expire. Those affected should keep an eye on the website and information posted on official communication channels so they don’t miss out on minting opportunities.
