LP Tokens and Why Yours Might Be an NFT

When you deposit into a liquidity pool you get something back that proves the deposit is yours. What that something is has changed, and the change matters more than it sounds, because it decides what else you can do with the position while it sits there.

The old design: a share of everything

In the original pooled model, every provider's capital was spread identically across all prices. That made every deposit the same kind of thing, differing only in size – so the receipt could be a fungible token. Hold 1% of the LP tokens, own 1% of the pool.

Because it is an ordinary ERC-20, it can be moved, staked in a farm, deposited as collateral, or traded. That composability is why an entire layer of yield products was built on top of LP tokens: they are a standard input.

The new design: your position is unique

Concentrated liquidity broke that, necessarily. Once every provider picks their own price range, no two positions are the same, and a fungible token cannot represent them. So the receipt became an NFT – a unique token recording your pair, your fee tier, your lower and upper bound and your share at those prices.

What you lose, practically

Most protocols that accept LP tokens as input cannot accept a position NFT, because they were built to take a fungible balance. That means no straightforward staking in a third-party farm, limited use as collateral, and no simple way to sell half a position.

The fee difference nobody mentions

In the pooled design, fees were added to the pool itself, so your share of a growing pool grew in value automatically. With position NFTs, fees accrue to your position and wait for you to collect them. Nothing compounds on its own, which is a real gap between a quoted rate and a received one.

What managers actually do

This is the problem Arrakis Finance, GGamma and similar products solve. They hold the position NFTs, manage the ranges, and issue you a fungible token representing your share of their vault – restoring composability by putting a layer in between. Liquidity Ladder does the range part without the wrapper, running several positions instead of one.

• If you want to stake or lend the position, you need a manager's fungible wrapper, not a raw NFT.
• If you hold the NFT yourself, claiming fees is a transaction you have to remember.
• Transferring the NFT transfers the whole position, including uncollected fees.
• Check what you actually hold before assuming a protocol will take it – the two receipts share a name and almost nothing else.