DeFiIntermediate7 min
What is a Liquidity Pool in Crypto? (Animated)
By Whiteboard Crypto
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Video by Whiteboard Crypto · All rights reserved to original creator.
Summary
Liquidity pools are the engine of DeFi. This lesson explains how liquidity providers deposit token pairs into smart contracts, how the AMM pricing formula works, what impermanent loss means for LPs, and how trading fees are distributed.
Key Concepts
Liquidity poolAMMImpermanent lossLP tokensTrading feesUniswap
Things To Remember
- Liquidity pools replace traditional order books on decentralized exchanges.
- Liquidity providers earn a share of trading fees.
- Impermanent loss occurs when the price ratio of pooled tokens changes.
- Always understand impermanent loss before providing liquidity.
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Attribution: This video was created by Whiteboard Crypto. All rights belong to the original creator. Crypto Education does not claim ownership of this content.