Liquidity provider tokens enable a noble way for crypto investors to earn passive income through investing in cryptos. Liquidity is a significant factor in generating income from cryptos without participating in frequent trades, and it has recently made this industry more attractive to investors.
However, it requires conducting some research and comparison when choosing the potent LP token as many of them are available in this group with different features and potentiality.
The article lists the top five LP tokens and all basic info for DeFi and DEXs. Moreover, you will learn how to choose the best LP tokens.
What are LP tokens?
They typically use an automated market maker (AMM) protocol that allows self-executing smart contracts. These tokens usually share transaction fees with the exchange platforms and the investors who own these tokens and invest in the liquidity pool.
There are several ways to make money through these coins, and the basic formula these crypto coins use is:
Total value of liquidity pool / circulating supply of LP tokens = value of 1 LP token
Crypto investors usually purchase LP tokens from decentralized exchange platforms and make deposits to earn rewards. For example, Uniswap offers a 25% annual interest rate on the Ethereum/USDC liquidity pool.
How to choose the best LP tokens?
When choosing any LP tokens to invest in and earning through depositing in liquidity pools, check on several factors such as:
- Choosing providers with stable data feed and reliability.
- Select tokens with competitive spreads, low commissions, and swaps.
- Choose LP that allows slippage, minimum requotes, and fast executions.
- Select tokens with a considerably higher volume.
- Try selecting LP tokens that allow fix protocol access and historical data. Moreover, it will enable multi-asset liquidity.
The top five liquidity provider tokens
Many LP tokens are available in the marketplace; the best five among them are:
- Balancer (BAL)
- Kyber Network Crystal (KNC)
- SushiSwap (SUSHI)
- 1inch Network (1INCH)
- Uniswap (UNI)
Balancer (BAL)
What is Balancer?
It is a price sensor, non-custodial portfolio manager, liquidity provider, and an AMM protocol on the Ethereum blockchain. The launching period of this platform is Mar 2020. This protocol uses a few types of pools: price pools, shared pools, and smart pools. Mike McDonald and Fernando Martinelli are the founders of the Balancer lab.
Other market information is mentioned below:
- Current price: $16.72
- 24-H trading volume: $41,506,659
- Fully diluted market cap: $1,695,246,704
- Live market cap: $117,715,066
- Circulating supply: 6,943,831.00 BAL
- Total supply: 35,725,000 BAL
- Max supply: 100,000,000 BAL
- Total Value Locked: $3,206,761,367
How much could you earn for 1 year?
It depends on several factors such as capital size, exchange platform, interest offerings, investment duration, etc. You can earn up to 36.48% APY from BAL coins.
Kyber Network Crystal (KNC)
What is KNC?
Kyber Network Crystal is a liquidity network protocol that multitudes liquidity from different sources to provide instant and secure transactions on any dApp. This platform aims to make swapping cryptocurrency and digital assets efficient and straightforward. Victor Tran, Yaron Velner, and Loi Luu are the developers of this platform, and development began in 2017.
Other market information is mentioned below:
- Current price: $2.95
- 24-H trading volume: $41,918,670
- Fully diluted market cap: $520,532,951
- Live market cap: $518,276,119
- Circulating supply: 177,809,349.53 KNC
- Total supply: 177,809,350 KNC
- Max supply: not available
How much could you earn for 1 year?
It depends on several factors, including investment amount, period, exchange platform, etc. Many platforms offer to earn up to 31.49% APY in KNC tokens.
SushiSwap (SUSHI)
What is SUSHI?
It is an example of AMM protocol and is increasingly popular among crypto investors. The launching of SushiSwap occurred as a fork of Uniswap in 2020, and chef Nomi is the founder of this platform.
Other market information is mentioned below:
- Current price: $3.94
- 24-H trading volume: $189,012,397
- Fully diluted market cap: $981,793,130
- Live market cap: $499,710,880
- Circulating supply: 127,244,443.00 SUSHI
- Total supply: 241,401,958 SUSHI
- Max supply: 250,000,000 SUSHI
- Total Value Locked: $3,781,881,069
How much could you earn for 1 year?
You can earn up to 24.49% APY from SUSHI.
1inch Network (1INCH)
What is 1INCH?
The 1Inch network combines DeFi protocols offering the most lucrative, fastest, and most protected operations in the DeFi. It is a DEX aggregator solution that seeks deals across multiple liquidity sources, offering participants better rates than any individual crypto exchange. Anton Bukov and Sergej Kunz are the founders of 1inch.
Other market information is mentioned below:
- Current price: $1.76
- 24-H trading volume: $111,972,407
- Fully diluted market cap: $2,642,376,796
- Live market cap: $725,713,743
- Circulating supply: 412,936,327.62 1INCH
- Total supply: 1,500,000,000 1INCH
- Max supply: not available
How much could you earn for 1 year?
Current APY for 1INCH is 21.71%.
Uniswap (UNI)
What is Uniswap?
It is an AMM protocol and is popular among crypto investors for facilitating automated trading. The launching period of this platform is Nov 2018, and Hayden Adams is the creator of this platform.
Other market information is mentioned below:
- Current price: $10.90
- 24-H trading volume: $236,239,249
- Fully diluted market cap: $10,794,658,251
- Live market cap: $7,437,955,568
- Circulating supply: 689,040,393.39 UNI
- Total supply: 1,000,000,000 UNI
- Max supply: 1,000,000,000 UNI
- Total Value Locked: $8,204,766,742
How much could you earn for 1 year?
The current offering for Uniswap is 7.25% APY.
Pros & cons
| Pros | Cons |
| Anyone can access liquidity pools. | Investors can face a temporary loss due to the change in deposited asset ratio. |
| Individuals are in control of digital assets. | The existing malfunctions and breakdowns in smart contracts involve the risk of losing coins. |
| Some coins provide attractive outcomes and fees in several layers. | There is no supervision over funds as these are decentralized protocols. |
Final thought
Crypto investors can earn attractive amounts of money through LP tokens without frequent trading. We suggest checking on several unavoidable factors when choosing the most potent LP tokens and exchange platforms. Additionally, risk as much as you can afford when investing in cryptos.
