Liquidity pool

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Liquidity pools are pools of different tokens and cryptocurrencies crowded together and locked into smart contracts. Liquidity pools are mainly used to trade different tokens on DEXes automatically, without the use of a matching engine that finds buyers and sellers willing to trade. In other words, thanks to smart contracts, liquidity pools enable peer-to-peer trading.

A liquidity provider provides funds to the liquidity pool. They earn a portion of the fees from transactions using the pool