The 'liquidity pool' and AMM in DeFi aren't really that hard.

Do you want to close the page when you see 'DeFi, liquidity pool, AMM'? Come on, let’s 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 execute a trade.

In many DeFi protocols, a different logic is used: AMM (Automated Market Maker) + liquidity pool.

You can think of it as:

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

Anyone can directly swap coins with this pool,

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

Those who provide funds for this pool are called LPs (liquidity providers):

They deposit two types of coins in proportion,

Helping others with the convenience of being able to swap at any time,

In return, they take a portion of the transaction fees.

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

When the prices of the coins fluctuate a lot, there is a risk of impermanent loss.

It's not 'just putting it in and passively earning without risk'.

So, here’s a summary for beginners:

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

Don’t just look at APR; very few people will explain the four words 'impermanent loss' in detail.