What Are Liquidity Pools in DeFi, and How Do They Work?
Liquidity pools are smart contract-based reserves of tokens used to facilitate decentralized trading, lending, and yield farming in DeFi (Decentralized Finance):

How They Work – Users deposit token pairs (e.g., ETH/USDC) into a pool, enabling trades without a centralized order book.
Who Provides Liquidity? – Anyone can become a liquidity provider (LP) by depositing assets, earning fees from transactions.
Benefits – Liquidity pools improve market efficiency, reducing slippage and allowing 24/7 decentralized trading.
Risks – Providers face impermanent loss, smart contract vulnerabilities, and potential rug pulls.
Examples – Platforms like Uniswap, Balancer, and PancakeSwap rely on liquidity pools for trading and DeFi operations.
Liquidity pools are the backbone of DeFi, enabling decentralized and permissionless financial services.