Liquidity Pools

Liquidity pools are collections of cryptocurrency funds locked in a smart contract, enabling decentralized trading on platforms like Uniswap. They allow users to buy and sell tokens without a traditional order book by providing liquidity. In exchange for providing funds, liquidity providers earn a share of transaction fees. Think of it like a communal balance sheet that facilitates smooth, instant exchanges between different tokens, improving market efficiency. This system removes reliance on central intermediaries, making trading more decentralized, transparent, and accessible for all participants.