Intermediate
Liquidity pool
Also: liquidity pools
A pot of two or more tokens locked in a smart contract that traders swap against.
Liquidity providers deposit both tokens of a pair and receive a share of trading fees. Their share of the pool changes as traders swap, which exposes them to impermanent lossImpermanent loss The shortfall liquidity providers can face versus simply holding, when the prices of pooled tokens move apart..
Related terms
- Automated market makerA DEX design that prices trades using a formula and a pool of tokens instead of an order book.
- Decentralized exchangeA smart-contract-based marketplace where people trade tokens directly from their own wallets.
- Impermanent lossThe shortfall liquidity providers can face versus simply holding, when the prices of pooled tokens move apart.