# Liquidity Pool

> A shared pot of two tokens that lets people trade between them on a decentralised exchange.

Canonical URL: https://fudfomo.co/glossary/liquidity-pool
Source: What The Block! Dictionary v1.0 (last updated 2026-04-25), browsable at https://wtb.fudfomo.co.

## Definition

A liquidity pool is a smart contract that holds a pair of tokens, for example ETH and USDC. People who supply tokens to the pool earn a small fee from every trade that goes through it.

When you trade against a pool, the price changes based on how much you take out compared to what is left. Big trades on small pools can move the price a lot, which is why slippage matters.

## Related terms

- [DEX](https://fudfomo.co/glossary/dex): A decentralised exchange. Trade crypto directly from your wallet, without an account.
- [DeFi](https://fudfomo.co/glossary/defi): Decentralised finance. Apps that offer lending, trading, and saving on a blockchain instead of through a bank.
- [Yield Farming](https://fudfomo.co/glossary/yield-farming): Moving crypto between DeFi apps to earn the highest rewards. Higher yields usually mean higher risk.
- [Slippage](https://fudfomo.co/glossary/slippage): The gap between the price you expected when you placed a trade and the price you actually got.

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