What’s New In
Crypto Today?
What changed, how it works, and what’s still unproven.Research by Lorde Builds
THE GLOSSARY / L

Liquidity pool

A shared pot of tokens that a blockchain app uses for swaps or other transactions, supplied by users who take both fee and price risk.

Version 1

A liquidity pool is a shared pot of tokens that a blockchain app can use to complete trades or other transactions.

Imagine a box containing ETH and USDC. People can swap one for the other through the box. Users called liquidity providers put the tokens into it and may earn fees when the pool is used.

Technically, a smart contract holds the pool’s assets and applies rules that calculate prices, fees and each provider’s share. A provider normally receives a position or pool token representing their claim on part of the assets.

The common misunderstanding is that providing liquidity works like keeping money in a savings account. It does not. The token mix and value can change, a contract can fail, and the pool may become hard to exit through normal interfaces. “Withdrawals-only” means providers may remove assets but the pool stops accepting the usual trading or deposit activity.