What Is a ‘Liquidity Pool’ and How Is It Funded?
A liquidity pool is a collection of two or more cryptocurrency tokens locked in a smart contract. It is the fundamental component of an AMM-based decentralized exchange.
The pool is funded by users, known as liquidity providers (LPs), who deposit an equivalent value of each token in the pair. In return for providing capital, LPs receive LP tokens, which represent their share of the pool, and earn a portion of the trading fees generated by the pool.
