# Understanding Liquidity & LP Tokens

## **What are LP Tokens?**

When you provide liquidity on Squirrel Swap, you receive **Liquidity Provider (LP) tokens** in return. These tokens represent your share in the liquidity pool and can be used to redeem your portion of the liquidity at any time.

* **LP tokens are a proof of ownership** in a liquidity pool. If you contribute tokens to a pool, you receive LP tokens that reflect your stake in the pool.
* These tokens track your share of the pool's assets and can be redeemed for the underlying tokens whenever you want to withdraw your liquidity.
* The value of LP tokens fluctuates depending on the trading volume and liquidity pool activity.

By holding LP tokens, you’re entitled to a share of the trading fees generated by the pool, as well as other potential rewards like $SQRL or $SOL tokens.
