Liquidity Pool

Reserves of tokens locked in smart contracts to facilitate trading on decentralized exchanges.

What is it? - Dummies

It's a “pool” of digital money where everyone puts cryptos so that others can easily exchange them

What is it? - PRO

A liquidity pool is a set of tokens deposited in a smart contract that provides automatic liquidity for exchange operations in DEXs, allowing swaps without the need for a traditional order book.

Key points

Used in AMM (Automated Market Makers).

Liquidity providers earn commissions.

Risk of impermanent loss.

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Sales and disadvantages

Advantages:

It facilitates trading without specific counterparties.
Encourage participation through rewards.

Disadvantages:

Impermanent loss in price movements.
Risk of failures in smart contracts.

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