Liquidity Pools

Liquidity pools are a novel concept that originated in DeFi and have since become essential to the workings of the overall system. Liquidity pools are what enable Automated Market Makers (AMMs), such as LayX, to ensure constant liquidity for all kinds of assets in the event of a trade. LPs has been integral in the growth of cryptocurrency and will be here to stay for the foreseeable future.

Liquidity pools work by holding an amount of certain assets (determined by the pool’s pair) that anyone can trade against, at any time. A small, variable fee is charged each time a user makes a swap using that pair. Users can lend/provide their unutilized assets to a liquidity pool for a portion of the fees generated and become what is known as a Liquidity Provider, or LP.