MAEXO

Liquidity pool

Glossary

DeFi

Liquidity pool

A pool of two tokens that powers AMM swaps and pays fees to providers.

Definition

In depth

A liquidity pool is a smart contract holding paired token reserves (e.g. ETH/USDC). Traders swap against the pool; in return, liquidity providers receive a pro-rata share of the swap fees. The trade-off is impermanent loss when token prices diverge.

Related

Related terms

AMM (Automated Market Maker)

Pricing model used by DEXs where pool reserves set the price.

Impermanent loss

The opportunity cost LPs incur when pool token prices diverge.

Yield farming

Earning rewards by supplying liquidity or staking in DeFi protocols.

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