Liquidity Pool
A liquidity pool is a smart contract that holds token reserves used to facilitate trading, lending, or other financial functions in DeFi. #Ethereum #ETH #VirtualEthereumIndex
A liquidity pool is a smart contract that holds token reserves used to facilitate trading, lending, or other financial functions in DeFi. In AMM-based DEXs, liquidity pools enable swaps by letting traders exchange one token for another against pooled liquidity, with prices determined algorithmically. Liquidity providers deposit tokens into the pool and earn fees, but they may face impermanent loss if token prices move relative to each other. Liquidity pools are also used in lending markets and derivatives protocols, forming a foundation for on-chain market depth. For mainstream adoption, liquidity pools make stablecoin exchange and tokenized asset markets possible without centralized market makers, enabling 24/7 settlement and global access. They also create a rich set of analytics metrics–volume, fees, depth–that investors and index builders track. Long-tail keywords like “provide liquidity,” “LP tokens,” and “impermanent loss calculator” are common entry points into Ethereum DeFi education. #Ethereum #VEI #VirtualEthereumIndex. Reference: vei.xyz/ethereum-glossary