Technical Definition
Liquidity Pool
A smart contract holding reserves of two or more tokens that traders swap against.
By Crypto University Editorial
Automated Market Maker (AMM) · Impermanent Loss · Total Value Locked (TVL) · Rug Pull · Price Impact
✦ Key Insight
Pool depth is the single biggest determinant of your execution quality, and pool ownership is where rug pulls happen — whoever controls the LP tokens can withdraw the liquidity.
✕ Common Misconceptions
Assuming a locked liquidity badge means locked forever — check the unlock date. Also assuming deep total value locked means deep liquidity for your specific pair.
Detailed Explanation
Liquidity providers deposit both assets in the pool and receive LP tokens representing their share. Traders swap against those reserves and pay a fee, which accrues to the providers. Pool depth determines how much a trade moves the price.
In Practice
“A trader checks a token's pool before buying and finds it holds only a small amount of the paired asset — enough that a modest order would move the price substantially.”