Pool Token Valuation

Definition ∞ Pool token valuation involves determining the fair market price of tokens issued by liquidity pools, particularly in automated market maker (AMM) protocols. These tokens represent a user’s share of the total assets deposited into a liquidity pool and their value is derived from the underlying assets held within that pool. Accurate valuation requires accounting for factors such as impermanent loss, trading fees, and the current market prices of the constituent assets. This process is essential for assessing investor holdings.
Context ∞ Understanding pool token valuation is crucial for participants in decentralized finance (DeFi), especially liquidity providers seeking to assess their returns and risks. News often discusses methodologies for calculating impermanent loss and the impact of market volatility on pool token values. The accuracy of these valuations is vital for informed decision-making in the dynamic DeFi landscape.