What is a liquidity pool?

A liquidity pool is a crowdsourced pool of cryptocurrencies or tokens that are locked in a smart contract and used to make trades between assets on a decentralized exchange (DEX). Instead of traditional buyer-seller markets, many decentralized finance (DeFi) platforms use automated market makers (AMMs), which leverage liquidity pools to allow digital assets to be traded in an automated and permissionless manner.

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