DeFi 10131 August 2021

DeFi Liquidity Pools – What Are They?

Liquidity Pool

Summary

· DeFi pools are smart contracts

· Liquidity pools are traded on decentralized exchanges

· Liquidity providers earn from their investment in pools

Decentralized finance liquidity pools are smart contracts that lock tokens and ensure their liquidity on decentralized exchanges. These tokens are provided to these smart contracts by users referred to as liquidity providers. You can think of a liquidity pool as funds pulled together in a digital pile locked in a smart contract.

Liquidity pools are the backbone of decentralized exchanges. Liquidity providers add an equal value of tokens to a pool to create a market. In exchange, they earn trading fees from trades in their pool based on individual shares in the pool.

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