A liquidity provider (LP) is such an institution that builds a market for a particular asset, giving the ability for firms to exchange their resources easily.
In this manner, a liquidity provider, in essence, creates a new demand and supply network for a particular commodity or asset class within which the provider operates.
These providers ensure that the market remains stable regarding a particular commodity, resource, or asset by determining and brokering fixed rates of exchange based on market evaluation of demand and supply and precedents based on market predictions.