What is a Liquidity Pool?

Liquidity pool is a term that refers to funds provided by crypto asset owners into a decentralized protocol, such as a DeFi protocol. The main purpose of liquidity pool is to increase liquidity in the protocol.

These liquidity providers deposit their crypto assets into the pool, and in return, they earn liquidity provider tokens (LP tokens) or special tokens that represent their ownership in the pool. Liquidity pool allows other users to exchange their crypto assets for the liquidity available in the pool, with prices determined by the ratio of assets in the pool. 

In addition, liquidity providers will also earn additional income (passive income) from fees < /span> The amount of this additional income is adjusted based on the presentation of assets in the liquidity pool they present. trading. 

In general, liquidity pools have an important role in decentralized financial services and the crypto ecosystem as a whole. 

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