All For One
  • Getting Started
    • Introduction
    • Installing the App
    • Creating a Wallet
      • Create via Seed Phrase
      • Create via SSO
      • Create via SSS
    • Importing a Wallet
      • Import via Seed Phrase
      • Import via Private Key
      • Import via SSS
      • Import via Hardware Wallet
    • Searching Crypto Assets
    • Buying Crypto Assets
      • Buying Coins with Fiat
      • Buying Tokens with Coins
    • Selling Crypto Assets
      • Selling Coins for Fiat
      • Selling Tokens for Coins
  • Token Research
    • Token Charts
    • Token Transactions
    • Token Whale Watching
    • Token Liquidity Info
  • Wallet Management
    • Supported Blockchains
    • Importing Tokens
    • Sending Crypto Assets
    • Receiving Crypto Assets
    • Wallet-Specific Settings
      • Enabling Chains
    • Global Wallet Settings
      • Collapse Defaults
      • Condensed View
      • Sort Tokens
      • Hide/Rearrange Wallets
  • User Settings
  • ECLIPSE™ Rankings
  • Security Features
  • Glossary
    • Definitions
      • Self-Custody Wallets
        • Public Addresses
        • Seed Phrases
        • Private Keys
        • Shamir's Secret Sharing
        • Multi-Chain Wallets
        • Hierarchical Determination
      • Smart Contracts
        • Tokens
        • NFTs
        • Staking Pools
      • Gas
      • Decentralized Exchanges
        • Automated Market Makers
        • Liquidity Pools
        • CPMM Formula
      • Decentralization
        • Distributed Consensus
          • Proof-of-Work
          • Proof-of-Stake
        • Decentralized Applications
        • Web3
        • Blockchains
          • Blockchain Explorers
    • Disambiguation
      • Coins vs Tokens
      • Seed Phrase vs Private Key
      • DEXs vs CEXs
      • Fungible vs Non-Fungible Tokens
      • PoW vs PoS
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  1. Glossary
  2. Definitions
  3. Decentralized Exchanges

Liquidity Pools

PreviousAutomated Market MakersNextCPMM Formula

Last updated 2 years ago

A Liquidity Pool for a (DEX) is a pool of funds provided by users of the DEX that is used to facilitate trading. When a user wants to trade a particular asset, they can do so by providing some of their own assets to the liquidity pool. This helps to ensure that there is always sufficient liquidity on the DEX to match buy and sell orders.

The exact formula used to determine the prices of assets being traded on a DEX liquidity pool will depend on the specific DEX and the algorithms it uses. However, most DEXs use some variant of the (CPMM) formula, which is a type of algorithm that sets prices based on the supply and demand of the assets being traded.

DEX liquidity pools play a crucial role in enabling efficient and trustless trading on decentralized exchanges. By providing liquidity to the pool, users can help to ensure that there are always sufficient funds available to match buy and sell orders, which in turn helps to keep prices stable and facilitate efficient trading on the DEX.

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