Liquidity Pool
A liquidity pool is a pool of funds locked in a smart contract that enables trading on decralised exchanges.
Quick Reference:
Used in DeFI. Pairs of Tokens. Earn Fees on Trades. Possible Impermanent Loss.
Expanded Explanation:
On decentralised exchanges, there are no order books. Instead trades happen against liquidity pools funded by users. For example, an ETH/USDC pool lets people swap between the two. The users who supply funds (liquidity providers) earn a share of trading fees. However, risk exists. Impermanent loss, where the value of your deposited tokens changed compared to holding them directly.