What is Liquidity Pool?
Last reviewed 2026-05-03
A liquidity pool is a smart-contract-held reserve of two or more tokens that enables AMM trading. LPs deposit pairs in correct ratio, earn fees, and bear impermanent loss / LVR risk. Pools are the atomic unit of DEX liquidity.
How it works
A liquidity pool is a smart-contract-held reserve of two or more tokens that enables AMM trading. LPs deposit pairs in correct ratio, earn fees, and bear impermanent loss / LVR risk. Pools are the atomic unit of DEX liquidity.
For deeper protocol-level mechanics, see the related glossary terms below or the linked DeFi Intel topic deep-dive.
Why it matters
Pools are the atomic unit of permissionless trading. Without them, on-chain DEXs would not work — order books on every chain are too slow/expensive.
Real-world examples
Uniswap v3 ETH/USDC 0.05% pool, Curve 3pool (USDC/USDT/DAI), Balancer 80/20 weighted pools, Aerodrome AERO/USDC.
Related terms
- AMM (Automated Market Maker)
- CPMM (Constant Product Market Maker)
- CLMM (Concentrated Liquidity Market Maker)
- Impermanent Loss (IL)
- LP Token
Go deeper
Read the full DeFi Intel topic deep-dive or browse the complete crypto glossary.
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