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What Is a Liquidity Pool and How Is It Used in a DEX?

Tokens locked in a smart contract that facilitate trading on a DEX (AMM), with LPs earning fees for providing assets.
Greeks.Live17.11.25

What Is a Liquidity Pool and How Is It Used in a DEX?

A liquidity pool is a collection of two or more tokens locked in a smart contract to facilitate trading on a Decentralized Exchange (DEX). It powers an Automated Market Maker (AMM) model.

Users, called liquidity providers (LPs), deposit tokens into the pool and earn trading fees in return, providing the necessary assets for traders to execute swaps.

What Is a ‘Liquidity Pool’ and How Is It Funded?
How Can a DAO Use an Options-Based Vault to Generate Yield on Its LP Tokens?
What Is the Role of a “Liquidity Provider” in an AMM System?
What Is the Function of an Automated Market Maker (AMM) in Providing Liquidity to a DAO’s Treasury Assets?

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