I can not wrap my head around liquidity pools and how they work etc… can someone help or point me to some online sources?


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Posted in Binance Reddit

4 Comments

  1. mrTheJJbug on 13. October 2023 at 13:50

    A liquidity pool is like a big swimming pool with lots of different colored balls inside. These balls represent different types of digital money or assets that people want to trade. When someone wants to buy a ball, they can go to the pool and pick one out. If someone else wants to sell a ball, they can also put it into the pool. Because there are so many different balls in the pool, it is easy for people to find the one they want to buy or sell, and the price of the balls doesn’t change too much. The people who put their balls into the pool get a little bit of extra money as a thank you for helping make the pool big and fun to swim in.

     


  2. Tall_Run_2814 on 13. October 2023 at 13:50

    Simply put you are providing liquidity to decentralized exchanges which are in turn purchased by people via swaps/trades.

    You provide Liquidity Pair Coin A and Coin B. Someone comes to the exchange and buys your Coin A for Coin B and you receive a small percentage of the transaction fee that occurs on the swap.

    Whiteboard Crypto has a fairly good detailed breakdown on YouTube: [https://www.youtube.com/watch?v=dVJzcFDo498&t=167s](https://www.youtube.com/watch?v=dVJzcFDo498&t=167s)

     


  3. xero_peace on 13. October 2023 at 13:50

    You’re loaning crypto to the exchange and get paid for loaning it so other people can buy and sell what you loaned to the exchange. You get paid, the exchange gets paid, and the users have more liquidity to gamble with.

     


  4. BinanceCSHelp on 13. October 2023 at 13:50

    A liquidity pool contains two assets users can swap between. There’s no need for market makers, takers, or an order book, and the price is determined by the ratio of the assets in the pool. Users who deposit the pair of tokens into the pool to enable trading are known as liquidity providers.
    You can find more details in our academy page: [https://academy.binance.com/en/articles/what-are-liquidity-pool-lp-tokens](https://academy.binance.com/en/articles/what-are-liquidity-pool-lp-tokens) ^KO