Tag: LP Impermanent Loss:

Imagine a digital vending machine stocked not with soda and chips, but with cryptocurrency tokens. This is essentially what a liquidity pool is – a crowdsourced reservoir of digital assets locked in a smart contract, facilitating decentralized trading, lending, and other DeFi (Decentralized Finance) activities. Let's dive into the world of liquidity pools and understand how they power the decentralized economy. What is a Liquidity Pool? Definition and Purpose A liquidity pool is a collection of cryptocurrencies or tokens locked in a smart contract. This pool enables users to buy, sell, or trade these assets on decentralized exchanges (DEXs) without relying on traditional market makers. The purpose of a liquidity pool is to provide liquidity, allowing for faster and smoother transactions o...