Finance glossary
Liquidity Pool
Definition
A pool of crypto tokens that enables decentralized trading.
A liquidity pool is a smart contract holding pairs of tokens that traders swap against on a decentralized exchange. Users who deposit tokens earn a share of trading fees but face impermanent loss if prices diverge. Pools replace traditional order books in DeFi.
In a sentence
By depositing both tokens into a liquidity pool, he earned a cut of every trade made against it.
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