# Polarity Liquidity Pools

### **PLP at the heart of Polarity's architecture**

<figure><img src="/files/itxtzjT7hewXV2UVOYYA" alt=""><figcaption></figcaption></figure>

PLP (Polarity Liquidity Provider) tokens represent the liquidity pool that enables options trading on Polarity. Liquidity Providers deposit assets (like BTC, ETH, and stablecoins) into the PLP pool and receive PLP tokens proportional to their share of the pool.

The PLP pool acts as the counterparty for options buyers, selling (writing) the options contracts. When traders purchase options, they pay premiums to the PLP pool. This premium income is the primary revenue source for LPs holding PLP tokens.&#x20;

However, as the counterparty to the options trades, the PLP pool bears the risk of options being exercised. If an option expires in-the-money, the pool must fulfill the contract terms by transferring the underlying assets to the option holder. This exposes LPs to potential losses if the premiums collected are insufficient to cover the cost of assets transferred upon exercise.

### Payoff at maturity

<figure><img src="/files/03FqSG0ZrlfVlkAOF7bY" alt=""><figcaption></figcaption></figure>


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