Liquidity Pool
Reserve of two tokens in smart contract enabling AMM swaps.
Liquidity Pool: token pair reserve (ETH/USDC) added by LPs. Each LP gets LP tokens (share proof). LP income: 0.05-1% of swaps proportionally. Risks: IL + contract risk + low util. Top: Uniswap V3 ETH/USDC ($1B), Curve 3pool ($500M).
In plain words
A reserve of a token pair (ETH/USDC) gathered in a smart contract and used for DEX swaps. You can add your own tokens to the pool (becoming a liquidity provider). In return, you earn a cut from every swap fee. More volume means more income, but you risk impermanent loss.
Example
Uniswap V3 ETH/USDC: $1.2B TVL, $500M 24h vol, 0.05% fee = $250k/day to LPs. APR (no IL): ~7%. ETH -50% = IL can exceed fees = negative yield.
Also known as: liquidity pool, LP, pool