Liquidity Pool
Also called: LP, liquidity provider, pooled liquidity
A liquidity pool is a smart contract holding two assets that traders swap against, funded by liquidity providers who earn a share of trading fees. It replaces the market maker with an open pot anyone can add to. The economics are frequently misunderstood: fee income is real, but so is impermanent loss, and a pool advertising a high yield is usually compensating for a high risk of it.