The "liquidity pool" and AMM in DeFi are actually not that difficult.

Do you want to close the page when you see "DeFi, liquidity pool, AMM"? Come, let me explain it in simple terms.

In traditional finance:

When you buy and sell stocks, you need to match buyers and sellers.

If no one is placing orders, you can't complete a transaction.

In many DeFi protocols, another set of logic is used: AMM (Automated Market Maker) + liquidity pool.

gemini

You can think of it as:

A pool of tokens (fund pool) just sitting there,

Anyone can directly exchange coins with this pool,

The price is automatically calculated by a set of formulas based on the ratio of the two types of tokens in the pool.

Those who provide funds to this pool are called LP (Liquidity Providers):

Deposit two types of coins in proportion

Help others provide the convenience of "instant exchange"

In return, earn a portion of the transaction fees.

It looks like "helping others to market and earn fees", but don't forget:

When coin prices fluctuate greatly, there is a risk of impermanent loss.

It's not "putting in and waiting equals risk-free earning."

So, here's a one-sentence summary for beginners:

First understand the risks, then decide whether to become an LP,

Don't just look at the APR; very few people will explain the term "impermanent loss" to you in detail.