Liquidity Pool
A liquidity pool is a collection of cryptocurrencies locked in a smart contract that enables decentralized trading. Users provide pairs of tokens and earn fees when others trade against the pool.
Understanding the Concept
Liquidity pools power DeFi. They replace order books with algorithms (automated market makers or AMMs). You deposit equal values of two tokens (like ETH and USDC) into a pool and become a liquidity provider (LP). Every time someone trades those tokens, you earn a fraction of the fee. Sounds great, right? The catch is impermanent loss—if one token's price changes significantly, you'd have made more money just holding. But in high-volume pools, trading fees can offset that loss. Liquidity pools democratize market making. You don't need millions anymore. Even $1,000 can earn passive income.
Real-World Example
You deposit $5,000 worth of ETH and $5,000 of USDC into Uniswap's ETH/USDC pool. You earn 0.3% of every trade. If $10M trades daily, your share of fees is around $30/day on your $10k investment. Not bad.
How Strykr Helps
Strykr tracks Liquidity Pool developments across the crypto ecosystem. Our AI provides real-time insights and alerts to help you navigate the market with confidence.
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