Internet
liquidity pool
What does liquidity pool mean?
A pool of tokens locked in a smart contract that provides the liquidity an automated market maker uses to price and execute trades. Providers deposit paired tokens and earn a share of fees.
"I added ETH and USDC to the liquidity pool to earn trading fees."
Origin
Fundamental DeFi mechanism underpinning AMMs.
Frequently asked questions
What is a liquidity pool?
It's a pool of paired tokens locked in a smart contract that an automated market maker uses to price and settle swaps.
How do you make money from a liquidity pool?
You deposit paired tokens as a liquidity provider and earn a share of the trading fees generated by swaps against the pool.
What is the risk of a liquidity pool?
The main risk is impermanent loss, which happens when the prices of the two pooled tokens diverge relative to just holding them.
Study it as flashcards or scroll it in Vocabulary Flow — saved to your collection.
