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What Is the Purpose of a Liquidity Pool in Decentralized Finance (DeFi)?

Provides the necessary token pairs for trading on a DEX and rewards liquidity providers with fees.
Greeks.Live29.10.25

What Is the Purpose of a Liquidity Pool in Decentralized Finance (DeFi)?

A liquidity pool is a collection of funds locked in a smart contract, providing the necessary liquidity for decentralized exchanges (DEXs) to facilitate trading. Users deposit pairs of tokens and earn trading fees in return, acting as automated market makers.

How Do Liquidity Providers (LPs) in a DEX Earn Fees?
What Is the Role of a ‘Liquidity Provider’ in an AMM?
How Does Competition among Liquidity Providers Benefit the Trader Requesting a Quote?
What Is an Automated Market Maker (AMM)?

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