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LP Returns
LPs earn when traders lose. Returns can be summarised as:
LP returns=Unmatched FundingRate+Unmatched OpenInterest PnL+Liquidation Margin+IncentivesLP \ returns= Unmatched \ FundingRate \\ + Unmatched \ OpenInterest \ PnL \\+ Liquidation \ Margin \\ +Incentives
The incentives are aligned in such a way that all the profits from the trades are paid directly to the liquidity providers.

Unmatched Funding Rate

Say there are $10,000,000 worth of open long positions and $8,000,000 worth of short positions. In this scenario, the funding rate would be positive and longs will pay shorts. For a funding rate = 0.1% :
    total payment from long positions = $10,000,000*0.001= $10,000
    total payment to short positions = $8,000,000*0.001= $8000
    difference earned by the pool = $10,000-$8000=$2000
To understand how funding rate is calculated, please refer to:

Unmatched OpenInterest PnL

For simplicity, let's assume all $10,000,000 long and $8,000,000 short positions were opened at $10,000 price of BTC. Now if the price moves to $10,500:
    uPNL for longs = $500,000
    uPNL for shorts = -$400,000
    difference earned by the pool = $100,000
Last modified 1yr ago