Liquidity Provider
Someone who deposits assets into a pool so that others can trade against them, receiving a share of the trading fees in return.
The provider receives a token or a position record representing a claim on a fraction of the pool, and fees accrue to that claim automatically as trades occur. The composition of the position changes continuously, because every swap adds one asset and removes the other, so a provider ends up with proportionally more of whichever asset has weakened. Returns therefore have two parts that must be netted against each other: fee income, which is always positive, and divergence loss, which grows as the two assets' prices separate. Withdrawal is normally available at any time, subject to the pool holding enough of the assets, and in concentrated-liquidity designs it also depends on where the price currently sits relative to the chosen range.
In pratica
In a pool charging a fixed percentage of each swap, a provider holding one percent of the pool receives one percent of every fee collected while the position remains in place.
Il malinteso più comune
Providing liquidity is not a deposit account; the mix of assets held changes with trading, and fees are a variable share of activity rather than a fixed rate.