Liquidity Pool
Also known as: AMM Pool, DeFi Token Reserve, Smart Contract Liquidity
A smart contract-based reserve of token pairs used to facilitate decentralized trading without traditional order books.
A liquidity pool is a collection of tokens locked in a smart contract, allowing users to trade against it in a decentralized exchange (DEX). Instead of matching buyers and sellers, automated market makers (AMMs) like Uniswap use liquidity pools to set prices algorithmically. Users contribute token pairs to the pool and receive LP tokens representing their share. They earn fees from trades but face risks like impermanent loss. Liquidity pools are foundational to DeFi, powering token swaps, yield farming, and synthetic asset creation.