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Glossary Term

Liquidity Pool

A liquidity pool is a decentralized pool of digital assets locked in a smart contract that enables instant token swaps, lending, and yield generation on platforms like Solana. Liquidity pools form the foundation of most DeFi protocols by enabling automated trading without the need for order books or centralized market makers.

Beginner
DeFi
Crypto Terminology

Liquidity Pool: what is it?

Examples

  • 1

    SOL/USDC pool on Orca or Raydium, facilitating instant swaps and yielding trading fees.

  • 2

    Meteora DLMM pools, letting LPs define custom price ranges for greater capital efficiency.

  • 3

    A stablecoin pool aggregating USDC, USDT, and PAI for low-slippage swaps.

Common Use Cases

Instant swaps for any two tokens without an order book.
Decentralized lending/borrowing where pooled funds are supplied as loans.
Yield farming, where LP tokens can be further “staked” for bonus rewards.
Launching new tokens with deep, bootstrap liquidity accessible via DEX aggregators like Jupiter.

Pro Tips

💡

Research pools and check if liquidity is locked ("burnt") to reduce rug pull risk.

💡

Use stable pairs (like USDC/USDT) to minimize impermanent loss; volatile pairs offer higher returns but greater risk.

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Monitor your LP positions during high volatility; dynamic fee protocols may compensate during these periods

Frequently Asked Questions

Related Terms

Borrowing
Staking
Stake Pool
AMM (Automated Market Maker)
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