What is a Liquidity Pool?

A liquidity pool is a collection of assets locked in a smart contract that provides liquidity for decentralized exchanges (DEXs), lending platforms, and other DeFi protocols. Liquidity providers contribute their assets to the pool in exchange for a share of the transaction fees or other rewards. By maintaining liquidity, these pools enable users to trade or borrow assets without the need for a centralized intermediary. Liquidity pools are essential to the functioning of many DeFi applications, facilitating seamless, peer-to-peer trading and financial services.