MPLS uses an LSR ID to allow LDP routers to form neighbor adjacencies. By default, the LSR ID is the highest IP address on a loopback interface. If there are no loopback interfaces, the highest IP address on a physical interface is chosen.

It is best practice to use a loopback interface as the LSR ID. Note also that the loopback interface must be reachable on the network, and must therefore be advertised in whatever IGP has been configured on the core of the MPLS network.