A liquidity pool is a smart contract that holds reserves of two or more tokens so people can trade without an order book. Automated market makers execute against the pool. Traders swap with the pool. The pool moves price based on the reserve ratio. Providers deposit equal values of both tokens and earn fees in proportion to their share.
If an ETH/USDC pool has 1000 ETH and 2,000,000 USDC, the implied price is $2,000 per ETH. A large ETH buy raises the price as ETH leaves and USDC enters. The constant product rule, x * y = k, keeps the pool from emptying completely. Pools sit under DeFi. DEX swaps, yield strategies, and lending routes depend on them. The main risk for providers is impermanent loss.
When the price ratio changes, you can end up with less value than if you had held the tokens. Larger divergence means larger loss. A liquidity pool is a smart contract holding reserves of two or more tokens, enabling decentralized trading without traditional order books. Instead of matching buyers with sellers, automated market makers use liquidity pools to execute trades algorithmically.
A pool is a contract holding token reserves. Uniswap v3 lets LPs concentrate that liquidity inside a price range.
Liquidity Pool Visualizer
Interactive simulation of an ETH/USDC liquidity pool. Adjust swap parameters and see how trades affect reserves and prices in real-time.