> For the complete documentation index, see [llms.txt](https://docs.respct.club/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.respct.club/information/token-economics/creator-token/liquidity-provision.md).

# Liquidity Provision?

### What is Liquidity and who is Liquidity Provider?

Liquidity in very simple terms means the ability of coin or token to be exchanged to other currency. Its really important for any currency or asset to be able to liquidify, if there is no one to buy a stock who would you sell it to, or if there is no one to sell who would you buy it from and that happens for an order book model but what about a trade handled through AMM, in AMM the trade takes place through LP or Liquidity Provider. These liquidity providers usually have a two tokens staked to LP so lets take an easy example of $ETH + $USDT.

The LP provider puts $100 worth of $USDT and equivalent $100 worth of $ETH. Now this acts as a liquidity for others who are either interested in buying USDT from ETH or those who want to exchange their ETH to USDT.

Lets also understand the concept of demand and supply which most of you will be familiar with, when there is a demand for one asset the price of that asset increases and when there is supply for one asset the price of that asset decreases. In a similar fashion for LP the two tokens work in respect to each other. If someone buys ETH from USDT then price of ETH increases and vice versa. This is how an AMM model works.

Now to add on to that there is a fee of 0.3% to each trade attached which is taken in form of the supply currency, of that 0.3% trade fee 0.2% is rewarded to the LP which might not sound like a big number but as and when trade volume grows this number becomes huge & also compensates for Impermanent Loss.

### What is Liquidity in Creator Token