What Is Liquidity Pool? Meaning & Example
Definition
A liquidity pool is a collection of tokens locked in a smart contract that traders can swap against. People who deposit tokens earn a share of trading fees but face risks such as impermanent loss.
Related terms
DeFi refers to financial services such as lending, borrowing and trading built on blockchains using smart contracts. It aims to work without traditional intermediaries but carries technical and platform risks.
LiquidityLiquidity describes how easily an asset can be bought or sold quickly without greatly moving its price. Highly liquid markets have many buyers and sellers and tight spreads.
Smart ContractA smart contract is a program stored on a blockchain that runs automatically when set conditions are met. It powers DeFi, NFTs and many other applications.
What is Liquidity Pool?
A liquidity pool is a collection of tokens locked in a smart contract that traders can swap against. People who deposit tokens earn a share of trading fees but face risks such as impermanent loss.
Can you give an example of Liquidity Pool?
A pool holding two tokens lets traders swap between them without needing a matching buyer or seller.