How can I earn money from Uniswap liquidity?

Crypto Liquidity Pools are an essential part of the DeFi ecosystem. These pools are a collection of tokens or digital assets stored in a smart contract . These pools, among other things, help to facilitate decentralized trading and reduce the danger of washout.

Liquidity provider tokens or LP tokens are tokens issued to liquidity providers on a decentralized exchange (DEX) that run on an automated market maker (AMM) protocol . Uniswap, Sushi and PancakeSwap are some examples of popular DEXs that distribute LP tokens to their liquidity providers.

You can earn money on Uniswap by providing liquidity through a pair of assets like ETH and DAI . Uniswap uses these assets as liquidity for traders. In return, it shares the trading fees with you. Note: Providing assets to Uniswap is not like lending on Compound.