#DidYouKnow
What are "Liquidity Pools" in the Crypto World?
✅ In the world of Decentralized Finance (DeFi), Liquidity Pools are a cornerstone of decentralized protocols, such as Uniswap, PancakeSwap, and others.
🤔 But, what exactly are they?
🖇️ Liquidity Pools are digital reservoirs containing a cryptocurrency pair (such as ETH/USDT), funded by users called "liquidity providers."
🖇️ These users deposit their coins into the pool in exchange for future profits.
🤔 How They Work!
🖇️ Instead of a third party such as banks or brokerage firms facilitating trading, decentralized platforms rely on these pools to provide liquidity to users who want to buy or sell cryptocurrencies.
🖇️ When a trade is executed, the currency is automatically withdrawn from the pool and the price is adjusted according to supply and demand.
✅ Why it matters!
⚪️ Enables instant trading without the need for a traditional order book.
⚪️ Provides the opportunity to earn passive income through fee earnings.
⚪️ It represents the cornerstone of many DeFi applications.
🚫 Warning: Despite the advantages, there are risks such as impermanent loss, so it's important to fully understand before participating.
CMX Academy 🎓
