Liquidity Pool
DeFi
Smart contract reserves enabling automated swaps and fees.
A liquidity pool is a contract that holds two or more tokens and sets prices using a formula. Traders swap against it and LPs earn fees for providing the tokens. When prices move, LPs face impermanent loss.
Frequently asked questions
How do pools price swaps?
With bonding curves like constant product or concentrated ranges. Prices update as reserves change.Who earns fees?
Liquidity providers earn a share of swap fees proportional to their stake in the pool.What can go wrong?
Smart contract bugs, oracle issues for some designs, and impermanent loss during volatile markets.