How to Use Crypto | Liquidity Pools Explained

Users, known as liquidity providers (LPs), contribute tokens - usually two different tokens - to a liquidity pool.
These tokens are then locked in a smart contract, which automates trading and other functions. When someone wants to trade ETH for USDC, they interact with the pool instead of needing a matching buyer or seller.
In return for providing liquidity, LPs earn a share of the transaction fees generated by the pool. These fees are proportional to the amount of liquidity they provided to the pool.

Decentralization: Liquidity pools enable decentralized trading without the need for centralized order books or intermediaries.
Constant Liquidity: Unlike traditional exchanges, where liquidity can dry up in volatile markets, liquidity pools ensure that there is always liquidity for trading as long as the pool has tokens.
Earning Potential: Liquidity providers can earn fees and rewards, making it a passive income stream for crypto holders.