Glossary
What is Liquidity pool?
A liquidity pool is a smart contract holding two tokens that traders swap against; its balances set the price via an automated market maker formula.
Instead of matching buyers and sellers like an order book, a DEX pool lets anyone trade against a shared reserve of two assets. Liquidity providers deposit both tokens and earn a cut of every swap's fee.
To make a new token tradable you create a pool pairing it with MON (or another token) and seed it with liquidity. The ratio you deposit sets the token's starting price.
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Related terms
- LP tokenAn LP (liquidity-provider) token is a receipt a DEX gives you when you deposit into a liquidity pool; it represents your share of that pool.
- AMMAn automated market maker (AMM) is the algorithm a DEX pool uses to price trades from its token reserves, instead of matching individual buy and sell orders.
- DEXA DEX (decentralized exchange) lets users swap tokens directly from their wallets through smart contracts, with no custodian holding their funds.
- Uniswap V2Uniswap V2 is the constant-product AMM design where liquidity is spread evenly across all prices and providers receive fungible LP tokens.