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href=https://www.bitdegree.org/"https://www.bitdegree.org/crypto/buy-tether-usdt/">Tether (USDT)</strong></a>. The process of liquidation may be forced or voluntary. During forced liquidation, the assets are automatically converted once the trade reaches certain conditions.</p>\n<p><strong>Forced liquidation</strong> happens when a trader&rsquo;s position in margin trading closes automatically after failing to maintain the requirements of leveraged positions. <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-leverage/">Leverage <strong>is a crucial part of margin trading</strong> as it is the multiple of the borrowed funds that traders use to boost their market positions. The higher the leverage prices, the lower the liquidation price range.</p>\n<p>If a person wants to margin trade ETH/USDC and has $50, they have to borrow $450 to be granted a 10x leverage. If ETH experiences a 10% dip, the investment will be considered gone and the borrowed funds will be heavily affected by the losses. 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They contain partial information about blockchain histories and take up less space than full nodes.</p>\n<p><a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-node/">Nodes are <strong>digital devices</strong>, such as computers, servers, phones, or wallets, connected to the blockchain network. Each node connects to the blockchain, forming a network, and provides all other devices with updates on the latest information added to the chain.</p>\n<p>Nodes are among the core components of the blockchain as they are responsible for <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-ledger/">ledger validation which provides transparency to the transaction logs viewable on the network. One of the key roles of the nodes is to ensure that all data stored on the network is accurate, secure, and accessible to designated authorized parties.</p>\n<p>While there are several different types of nodes, such as <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-mining/">mining, <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-staking/">staking, and <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-are-masternodes/">masternodes, the two key categories are full&nbsp;and light nodes.</p>\n<p>Although both categories serve a similar purpose, <strong>light nodes depend on full nodes for their functionality and data access</strong>. Full nodes contain a copy of the whole verified blockchain history. This includes all transaction data and the processed blocks.<br />&nbsp;<br />Light nodes contain <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-block-header/">block headers</strong></a> which are used to support and query transaction <a href=https://www.bitdegree.org/"/crypto/learn/crypto-terms/what-is-volatility/">volatility. The block header provides a summary of the data stored in a specific block, including the information connecting it to the previous block on the chain.</p>","level":"easy","meta_title":"What is Light Node? 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Crypto Terms: Letter L

What is Liquidity Provider?

Liquidity Provider MEANING:
Liquidity Provider - is a user who funds liquidity pools with their personal assets.
Easy
1 minute

Let's find out Liquidity Provider meaning, definition in crypto, what is Liquidity Provider, and all other detailed facts.

Liquidity providers are decentralized exchange users who fund a liquidity pool with tokens they possess. They do this to facilitate trading on the platform to earn passive income on their deposits.

A liquidity provider, for example, may supply a liquidity pool containing $8,000 worth of Ether and $8,000 worth of USD-pegged decentralized stablecoin DAI to facilitate trade that takes place between the two. 

As a result, each time a trade on the ETH/DAI is made, the liquidity provider gets compensated for funding the pool in question.

So, the percentage of liquidity pool they provide determines how much they will get paid. Typically, they are obligated to fund two separate assets when funding the pool, to allow traders to change between one another by trading them in pairs.

Decentralized exchanges employ automated market maker-based systems to facilitate the trading of illiquid trading pairs with minimal downtime leveraging liquidity pools. Rather than typical order book-based trading platforms, such exchanges employ money for each asset in each trading pair to permit deals to be performed.

Although trading illiquid trading pairs on order book-based exchanges may result in significant dislocation and failure to finish transactions, liquidity providers' benefit is that trades may always be performed as long as the liquidity pools are large enough. 

As a result, liquidity providers are regarded as trade enhancers and are compensated through service fees charged from their facilitated trades.