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Time Stamps:
0:00 – Start
1:02 – Defi Liquidation Pool
2:46 – Decentralized Exchanges
7:22 – What are Liquidity Pool
9:27 – Impermanent Loss
12:18 - End
Decentralized finance, (DeFi) has resulted in a surge in on-chain activities. Decentralized protocols, which are into decentralization of conventional financial services have achieved formidable popularity over the course of time in recent years. Interestingly, DEX volumes can now compete meaningfully with centralized exchange volumes.
What Is A Liquidity Pool?
A liquidity pool is a crowdsourced pool of cryptocurrencies or tokens that are locked in a smart contract and are used to facilitate trades between the assets on a decentralized exchange (DEX). It is a mechanism with which users can pool their crypto assets in a DEX’s smart contract to provide liquidity for traders to swap between currencies.
Instead of the traditional buyer-and-seller markets, most decentralized finance (Defi) platforms use automated market makers (AMMs), which allow digital assets to be traded automatically and without permission via liquidity pools.
Liquidity pools are the backbone of the AMM segment and an important source of passive income for Defi users. In addition to AMMs, liquidity pools facilitate other aspects of Defi such as decentralized lending and borrowing. However, while it could be profitable, depositing your funds in a liquidity pool entails risks that you must consider before making any decision.
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DISCLAIMER: This is not financial advice! This is an entertainment and opinion-based show. I am not a financial adviser. Please only invest what you can afford to lose, and we encourage you to do your own research before investing. DYOR
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