0 reply
0 recast
0 reaction
Crypto Lesson with /sense
What is a liquidity pool ?
A crypto liquidity pool is a collection of cryptocurrencies locked in a smart contract that provides liquidity for decentralized trading, lending, and other DeFi services.
š In Simple Terms
A liquidity pool is like a pot of tokens provided by users so others can trade, swap, or borrow crypto without needing a traditional buyer or seller on the other side.
š§± How It Works
Users (called liquidity providers, or LPs) deposit equal values of two tokens (e.g., ETH and USDC) into a pool.
The pool enables other users to swap between those tokens using an automated market maker (AMM) instead of a traditional order book.
In return, LPs earn a share of the trading fees generated by swaps in the pool.
š§® Example:
Alice deposits $1,000 of ETH and $1,000 of USDC into a pool.
Bob swaps USDC for ETH using that pool.
A small fee (e.g., 0.3%) is taken from Bob's trade and distributed to Alice and other LPs. 8 replies
0 recast
13 reactions
0 reply
0 recast
1 reaction
