A "liquidity pool" is a decentralized smart contract or protocol that holds a supply of two or more different cryptocurrencies or tokens.
A “liquidity pool” is a decentralized smart contract or protocol that holds a supply of two or more different cryptocurrencies or tokens. These liquidity pools facilitate the trading and swapping of assets on decentralized exchanges (DEXs) and other DeFi platforms by providing the necessary liquidity for traders.
Liquidity pools have become a cornerstone of decentralized exchanges and DeFi platforms, providing a mechanism for users to trade cryptocurrencies and tokens in a decentralized and permissionless manner. They offer an alternative to traditional centralized exchanges and play a vital role in the growing DeFi ecosystem, allowing users to access a wide range of assets and participate in various DeFi protocols. However, liquidity providers should be aware of the potential risks and rewards associated with participating in these pools, including the impermanent loss and potential for high returns through fees.