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What is a Liquidity Pool in DeFi? 🤔
A Liquidity Pool is a collection of crypto funds stored in a smart contract to make trading easier on DeFi platforms.
In simple terms, it works like this:
• Users deposit crypto into the pool
• These funds are used by others for swaps / trading
• Liquidity providers receive fees as a reward
A simple example:
If you deposit ETH & USDT into a liquidity pool, you help provide liquidity for traders.
In return, you’ll receive a share of the transaction fees that occur in that pool.
That’s one way to generate income in DeFi.
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