LP Token (Liquidity Provider Token)

An LP (Liquidity Provider) token is a cryptographic receipt automatically minted and given to users who deposit assets into an Automated Market Maker (AMM) pool, representing their proportional ownership of that pool’s reserves.

If you want to withdraw your original liquidity plus any trading fees earned, you must give the LP tokens back to the smart contract.

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The Mechanics of LP Tokens

When a developer launches a new meme coin on Raydium, they must deposit their new tokens alongside real SOL to create a market (e.g., 1 Billion $MEME + 50 SOL).

In exchange for depositing this liquidity, Raydium gives the developer LP Tokens. As long as the developer holds those LP tokens in their wallet, they have the absolute right to click “Withdraw” and pull all the SOL and $MEME out of the pool at any time.

Why “Burned LP” is Mandatory

If the developer keeps the LP tokens, they can execute a Rug Pull. Once retail traders buy the coin and pump the pool up to 500 SOL, the developer simply redeems their LP tokens, stealing the 500 SOL and leaving the token’s value at exactly zero.

To prove a meme coin is safe, a developer must Burn the LP Tokens. Burning means sending the LP tokens to a “dead” wallet address (like 1nc1nerator11111111111111111111111111111111 on Solana) where nobody has the private keys.

Once the LP tokens are burned, the liquidity is permanently locked in the Raydium pool forever. No one, not even the developer, can ever remove the SOL. This is why tools like BullX and Trojan have massive green checkmarks for “LP Burned” on their scanners.

(Note: Tokens launched on Pump.fun have their LP tokens automatically burned by the platform upon migration).

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Related Terms

• Rug Pull — What happens if the LP tokens are not burned.
• Impermanent Loss — The risk of holding LP tokens.
• The Math Behind AMM Pools — How LP value is calculated.