Question

What is a liquidity pool?

Answer 1

A liquidity pool is a smart contract that contains funds used to facilitate trading in decentralized exchanges (DEXs). Users can provide liquidity by depositing pairs of tokens into the pool, and in return, they receive liquidity pool tokens representing their share of the pool. These pools enable users to trade assets without relying on centralized exchanges and provide liquidity to the market.

Answer 2

A liquidity pool is a smart contract on a decentralized exchange (DEX) that contains a reserve of funds for trading. Users can contribute their crypto assets to the pool, which helps facilitate trading by providing liquidity. Traders can then swap between different tokens by trading against this pool, with prices determined by an automated market maker algorithm. Liquidity pools play a key role in enabling decentralized trading on platforms like Uniswap and Sushiswap.