# 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 **XSP** and **XDC** into a Liquidity Pool, you'd receive **XSP-XDC LP (XSP2)** tokens.

The number of LP tokens you receive represents your portion of the XSP-XDC Liquidity Pool. 

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

<figure><img src="https://3850697944-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FLAq3T3pGUJ5zAoOhsYrX%2Fuploads%2Fg1sp0xnKM74Y2BGILFd5%2Fimage.png?alt=media&#x26;token=8c2ad406-5b8a-448f-9409-501fb06a02e2" alt=""><figcaption></figcaption></figure>

## Liquidity Providers earn trading fees

Providing liquidity gives you a reward in the form of trading fees when people use your liquidity pool.&#x20;

Whenever someone trades on XSwap, the trader pays a 0.3% fee, **of which 0.214%** is added to the Liquidity Pool of the swap pair they traded on.

For example:

* There are 10 LP tokens representing 10 XSP and 10 XDC tokens.
* 1 LP token = 1 XSP + 1 XDC
* Someone trades 10 XSP for 10 XDC.
* Someone else trades 10 XDC for 10 XSP.
* The XSP/XDC liquidity pool now has 10.0214 XSP and 10.0214 XDC.
* Each LP token is now worth 1.00214 XSP + 1.00214 XDC.

To make being a liquidity provider even more worth your while, you can also put your LP tokens to work whipping up some fresh yield on the [XSWAP Farms](https://xdc.farm), while still earning your 0.214% 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)


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