Leveraged LP

Definition ∞ Leveraged LP refers to a Liquidity Provider (LP) in a decentralized finance (DeFi) protocol who utilizes borrowed funds to amplify their liquidity provision position. By using leverage, an LP can supply more assets to a liquidity pool than their initial capital allows, aiming for proportionally higher trading fee earnings. This strategy enhances potential returns but also increases exposure to impermanent loss and liquidation risks. It represents a more aggressive approach to yield generation.
Context ∞ Discussions around Leveraged LPs frequently appear in news concerning advanced DeFi strategies and the risks associated with them. Reports often analyze the profitability and potential downsides of such positions, especially during periods of high market volatility. The mechanics of leveraged liquidity provision are a key topic for understanding sophisticated yield farming and the overall risk profile within decentralized exchanges.