Liquidity Pool Impermanence: A Silent Profit Killer?
Liquidity pools have revolutionized decentralized finance (DeFi), becoming the backbone of decentralized exchanges (DEXs) and enabling seamless trading of Digital assets. But what exactly is a liquidity pool, and how does it work? This article dives deep into the world of liquidity pools, explaining their mechanics, benefits, risks, and real-world applications, empowering you to navigate the DeFi landscape with confidence.
What is a Liquidity Pool?
Defining a Liquidity Pool
A liquidity pool is essentially a collection of tokens locked in a smart contract. These tokens are provided by users, known as liquidity providers (LPs), who deposit them in exchange for rewards. These pools facilitate trading by providing liquidity for buyers and sellers on decentralized exchanges, without the need fo...