Glossary > Liquidity pool

Liquidity pool

What is a liquidity pool?

A liquidity pool gathers funds that are locked in a smart contract. These funds provide liquidity to decentralized finance projects such as DEXs. They simplify asset trading and allow investors to make profits.

In each pool are two or more tokens which create a market for them. DAI/ETH is for example a popular pair on DEXs. Liquidity pools aim at facilitating the trading of trading pairs on DEXs.

Users fund liquidity pools with their own tokens. They will earn income on their deposit depending on the percentage provided.