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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.
🔍 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.
🧱 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.
🧮 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. 9 replies
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