Definition
A liquidity pool is a collection of crypto assets locked inside a smart contract to provide liquidity for decentralized finance (DeFi) applications. Instead of relying on traditional order books, these pools aggregate tokens from multiple depositors and make them continuously available for on-chain interactions. The pool itself is a core DeFi building block that defines which tokens are available, in what proportions, and under what rules they can be exchanged or otherwise utilized.
In decentralized exchanges such as Uniswap or Curve, liquidity pools typically hold pairs or baskets of tokens that traders can swap against. The pool’s smart contract enforces a pricing formula and balance relationship between the assets, and it tracks each provider’s share of the pool. Because the assets are locked on-chain, the pool remains accessible to other protocols and contracts, allowing composable integrations across the broader DeFi ecosystem.
Context and Usage
Liquidity pools underpin many DeFi services, including token swaps, yield strategies, and staking-like arrangements on platforms such as Lido. Participants who deposit assets into a pool are typically referred to as liquidity providers and receive a claim on the pool’s assets and any fees or rewards defined by the protocol. The structure of the pool, including token weights and fee parameters, influences pricing behavior and the risk of phenomena such as impermanent loss.
Different DeFi protocols implement liquidity pools with specialized designs tailored to their use cases. For example, Curve focuses on pools optimized for assets with similar prices, while Uniswap popularized constant-product pools for a wide range of token pairs. Across these implementations, the liquidity pool remains a conceptual primitive: a shared, on-chain reservoir of tokens that enables permissionless access to decentralized financial functions.