Liquidity Provider (LP) tokens are a novel technology used by crypto adopters to earn passive crypto earnings. Rewards are just one aspect of liquidity provider tokens. These liquidity providers also support decentralized exchanges. These LP tokens are allocated to liquidity providers on the decentralized exchanges (DEXs). These DEXs, in turn, run on automated market makers (AMM).
The unique aspect of LP tokens is that they allow the use of the same tokens multiple times, irrespective of them being staked in a platform or invested in a DeFi product. The limited liquidity pool in crypto is overcome by the indirect form of staking that is done through LP tokens. Proof of ownership is prioritized over staking the LP tokens themselves. Liquidity providers receive fees from the trades that occur in the liquidity pool where they have added funds. This is a great method to earn passive income on idle cryptos.