What is Liquidity Pool?

Question

Accepted Answer

A **Liquidity Pool** is a crowdsourced collection of two or more crypto assets locked in a smart contract, primarily used by decentralized exchanges (DEXs) and other DeFi protocols to facilitate automated, permissionless trading and lending without the need for traditional order books.

Liquidity Pool

What is Liquidity Pool?

What is the primary function of a Liquidity Pool in decentralized finance (DeFi)?

How do Liquidity Providers (LPs) earn returns, and what are the associated risks, such as Impermanent Loss?

How have Liquidity Pools evolved from simple two-token pools to more capital-efficient and specialized structures?

Beyond token swapping, what other key decentralized finance (DeFi) primitives rely on Liquidity Pools for their operation?

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