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description: Provide liquidity, get rewarded.
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# Liquidity Pool

In addition to trading tokens, traders can contribute to the liquidity of our spot markets by pairing two tokens in equal proportions, generating liquidity provider (LP) tokens.

A liquidity pool essentially contains two tokens. For instance, the pool might comprise of UNIBOT and ETH tokens. This dual token system facilitates users in performing token swaps.&#x20;

## Liquidity Pool Components

**Fees**

Every trade on butter.xyz incurs a 0.25% fee. From this, 90% is channeled back to the respective liquidity pool of the traded token pair.&#x20;

**Earning**

By adding a token pair to the LP (known as "adding liquidity"), users are entitled to a share of the trading fees. In exchange for their liquidity, they receive an LP token, symbolizing their stake in the pool.&#x20;

**Pool Creation**

Liquidity pools are formed by coupling two distinct cryptocurrency tokens and locking them into a smart contract. Butter.xyz employs the constant product formula for its automated market maker (AMM) system and its liquidity pools. This ensures a 50/50 split of assets based on their current value, maintaining that each liquidity pool consists of only two tokens.&#x20;

**Trading Pairs**

The terms "liquidity pools" and "trading pairs" are often used interchangeably since two tokens are paired to produce an LP token. This paired asset structure permits swapping between the two tokens.&#x20;

For example: If 10 LP tokens equate to 10 BUTTER and 10 USDT tokens, then 1 LP token is equivalent to 1 BUTTER + 1 USDT.  Post two trades: one trading 10 BUTTER for 10 USDT and the other trading 10 USDT for 10 BUTTER, the BUTTER/USDT liquidity pool holds 10.015 BUTTER and 10.015 USDT. This means each LP token is now valued at 1.00015 BUTTER + 1.00015 USDT.
