Liquidity Pools
Pooled assets in a smart contract that enable trading on decentralised exchanges.
Liquidity pools are pooled assets in a smart contract that power decentralised exchange trading.
Liquidity pools are funds locked in a smart contract that let users trade tokens on decentralised exchanges without an order book. Price moves against the pool balance as trades are filled. They are a core part of crypto trading and can be a source of slippage on larger orders.
How It Works
- They replace the order book in DeFi
- Trades move the pool price
- Slippage grows on larger orders
Trading Tips
Check pool depth before a large trade
Expect more slippage in thin pools
Know that pool pricing differs from an order book
Liquidity Pools Example
Say you swap $100,000 of an altcoin through a $500,000 pool. Your trade shifts the pool ratio so badly you receive 6% less than quoted: slippage eaten by your own size. Split across deeper pools and the loss halves.
How Traders Use Liquidity Pools
Check pool depth before any sizeable DEX trade and cap orders below 1% of pool value. Thin pools punish urgency. Split execution or use aggregators that route around them.
Related Terms
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