The Importance Of Liquidity In Decentralized Finance (DeFi)
A liquidity pool is a collection of funds locked in a smart contract and used to facilitate decentralized trading, lending and more. Users called liquidity providers add an equal value of two tokens in a pool to create a market. In exchange for providing their funds, they earn trading fees from the trades that happen in their pool, proportional to their share of the total liquidity. Anyone can be a liquidity provider and automated market makes (AMMs) like Uniswap have made market making more accessible.
Founder of DigitalGen Financial Services. Focusing on financial and crypto education.
Join Hacker Noon
Create your free account to unlock your custom reading experience.