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Liquidity Pool

A pot of two or more tokens locked in a contract that traders swap against, with prices set by a formula rather than an order book. Depositors earn a share of the trading fees.

Also called liquidity pools · AMM · automated market maker

A pot of two or more tokens locked in a contract that traders swap against, with prices set by a formula rather than an order book. Depositors earn a share of the trading fees.

Why it matters

Depositors are exposed to impermanent loss when the pooled assets move apart in price.

Related terms

  • Impermanent Loss
  • DeFi
  • Yield Farming

Keep reading

Private Key The secret number that authorises transactions from an address. Possession of the key is… Audit A review of a smart contract's code by a specialist firm, looking for vulnerabilities… NFT A token representing a unique item rather than an interchangeable unit, recorded on a… Token A digital asset issued on an existing blockchain rather than having its own. Tokens… Self-Custody Holding your own keys rather than leaving assets with an exchange or custodian. Whale A holder large enough that their transactions can move a market on their own.