@charmer2

Liquidity pools are collections of funds locked in smart contracts on decentralized exchanges (DEXs) that facilitate trades without the need for a traditional order book. Users contribute to liquidity pools by depositing pairs of tokens, earning a share of transaction fees in return. These pools help maintain liquidity, ensuring that trades can be executed quickly and at market prices, even during periods of high demand. Liquidity pools enable DEXs to operate in a decentralized manner, allowing anyone to trade directly from their wallets without relying on centralized intermediaries. However, impermanent loss—where liquidity providers can lose value due to price fluctuations—remains a risk for those participating in these pools.

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