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What Is the Significance of a ‘Liquidity Pool’ in a Decentralized Exchange (DEX) Context?

It is the source of liquidity for an AMM, its size and asset ratio directly determine trading slippage and asset pricing.
Greeks.Live14.11.25

What Is the Significance of a ‘Liquidity Pool’ in a Decentralized Exchange (DEX) Context?

A liquidity pool is a collection of funds locked in a smart contract that facilitates trading on a DEX via an Automated Market Maker (AMM). It is the source of liquidity for all trades.

Its significance is that its size and the ratio of its assets directly determine the slippage and pricing, replacing the traditional order book mechanism.

How Does a Decentralized Exchange (DEX) Handle Slippage Compared to a Centralized Exchange (CEX)?
What Is an Automated Market Maker (AMM) and How Does It Differ from a Traditional Order Book?
How Do Automated Market Makers (AMMs) Determine the Price of an Asset in a Liquidity Pool?
What Is “Impermanent Loss” in the Context of AMMs and Liquidity Provision?

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