Pool Token

Definition ∞ A pool token is a digital asset issued to liquidity providers who deposit their funds into a liquidity pool within a decentralized finance (DeFi) protocol. This token represents a proportional share of the assets within that specific pool, allowing the holder to claim their original deposit plus any accumulated fees or rewards. It acts as a receipt for providing liquidity, enabling participants to withdraw their contributions and earnings. This mechanism is central to DeFi operations.
Context ∞ Pool tokens are fundamental to the operation of automated market makers and other DeFi protocols, incentivizing users to supply capital for decentralized trading and lending. The value of a pool token fluctuates with the underlying assets in the pool and the fees generated, introducing specific risks such as impermanent loss. Understanding pool tokens is essential for participants engaging in yield farming and liquidity provision within the DeFi ecosystem. News reports on DeFi often discuss the utility and risks associated with these tokens.