Projects weigh security risks, benefits of liquidity pool token collateral By Cointelegraph

Initiatives weigh safety dangers, advantages of liquidity pool token collateral

A number of decentralized finance (DeFi) initiatives are transferring ahead with plans to permit liquidity supplier tokens as collateral for stablecoin and lending companies — although consultants warning that the safety issues related to utilizing LP tokens on this method might be complicated.

LP tokens are distributed to liquidity suppliers on automated market makers (AMMs) to symbolize a supplier’s stake in a liquidity pool. Suppliers are incentivized with buying and selling and protocol charges which might be paid out upon withdrawal.

One other step within the cycle

Additional dangers

Extra liquidity, extra safety