> For the complete documentation index, see [llms.txt](https://doc.penguin.exchange/doc/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://doc.penguin.exchange/doc/products/exchange/liquidity-pools.md).

# Liquidity Pools

When you add your token to a Liquidity Pool you will receive Liquidity Provider (LP) tokens and share in the fees.

## LP Tokens

As an example, if you deposited **EGG** and **UTG** into a Liquidity Pool, you'd receive **EGG-UTG LP** tokens.

The number of LP tokens you receive represents your portion of the EGG-UTG Liquidity Pool. 

You can also redeem your funds at any time by removing your liquidity.

## Liquidity Providers earn trading fees

Providing liquidity gives you a reward in the form of trading fees when people use your liquidity pool. 

Whenever someone trades on PenguinSwap, the trader pays a 0.25% fee, **of which 0.17%** is added to the Liquidity Pool of the swap pair they traded on.

For example:

* There are 10 LP tokens representing 10 EGG and 10 UTG tokens.
* 1 LP token = 1 EGG + 1 UTG
* Someone trades 10 EGG for 10 UTG.
* Someone else trades 10 UTG for 10 EGG.
* The EGG/UTG liquidity pool now has 10.017 EGG and 10.017 UTG.
* Each LP token is now worth 1.00017 EGG + 1.00017 UTG.

To make being a liquidity provider even more worth your while, you can also put your LP tokens to work whipping up some fresh production on the EGG IGLOO, while still earning your 0.17% trading fee reward.

## Impermanent Loss

Providing liquidity is not without risk, as you may be exposed to impermanent loss.

\
[“Simply put, impermanent loss is the difference between holding tokens in an AMM and holding them in your wallet.” - Nate Hindman](https://blog.bancor.network/beginners-guide-to-getting-rekt-by-impermanent-loss-7c9510cb2f22)