A liquidity pool, in a nutshell, allows crypto traders and investors to gain access to market liquidity in decentralized finance (DeFi) markets.

Liquidity pools, in particular, are a collection of funds placed in a smart contract to provide liquidity for decentralized exchanges (DEX), lending and borrowing protocols, and other DeFi applications.

A liquidity pool can be thought of as a decentralized alternative to an order book or matching engine powered by smart contracts.