noun
Internet Slang
liquidity pool
li-KWID-i-tee POOL · noun · informal
A smart-contract fund of token pairs that powers swaps on a DEX.
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Definitions
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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.”
by community
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liquidity pool In A Sentence
I added ETH and USDC to the liquidity pool to earn trading fees.
Origin & Usage
Fundamental DeFi mechanism underpinning AMMs.
People Also Ask
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.
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