Liquidity Pool(LP)
A smart contract holding paired assets that enables trading, lending, or other DeFi activities.
In-Depth Explanation
Liquidity pools are the foundation of DeFi. Users deposit assets into pools and receive LP tokens representing their share. Pools power AMMs (trading), lending protocols (borrowing), and yield farms. LP providers earn fees but face risks including impermanent loss and smart contract vulnerabilities.
Related Terms
Automated Market Maker
AMMA smart contract that provides liquidity and enables trading using a mathematical formula instead of an order book.
Impermanent Loss
ILThe loss in value compared to simply holding assets, caused by providing liquidity to an AMM as prices diverge.
Liquidity Mining
Earning token rewards by providing liquidity to a DeFi protocol.
Total Value Locked
TVLThe total value of crypto assets deposited in a DeFi protocol or across all of DeFi.
More in DeFi Primitives
View all →Automated Market Maker
AMMA smart contract that provides liquidity and enables trading using a mathematical formula instead of an order book.
Collateralized Debt Position
CDPA loan where users deposit collateral to mint or borrow assets, with liquidation risk if collateral value falls.
Lending Protocol
A DeFi application that matches lenders with borrowers through smart contracts, enabling permissionless borrowing and lending.
Decentralized Exchange
DEXA cryptocurrency exchange that operates through smart contracts without a central authority or custody of user funds.