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Author: Admin | 2025-04-28
Lock up your crypto assets in a smart contract but don’t use the assets for financial liquidity. Instead, you use the assets to secure the network with blockchains with a Proof of Stake (PoS) consensus mechanism. As a reward for securing the network, you earn interest from block rewards on the network.What is Crypto Exchange Liquidity?Liquidity is the lifeblood of DeFi, and finance in general. In crypto, liquidity is assets available for immediate deployment (swaps).The easiest way to understand why liquidity pools exist and how they work is by drilling into one of the major use cases of liquidity pools: a decentralized exchange. We’ll take the example of Uniswap to explain one of the largest decentralized exchanges on Ethereum.Decentralized exchanges and protocols still need liquidity to execute trades, but using traditional methods to provide this supply would defeat the whole premise of being decentralized. The solution to the problem is creating liquidity pools governed by smart contracts. Liquidity pools are in place to provide liquidity to DeFi platforms (exchanges, lenders, borrowers, insurance, etc.) in a peer-to-peer fashion without using centralized exchange pools held by a custodian.What is a Liquidity Pool?A liquidity pool is a smart contract where crypto users’ funds group together to provide liquidity for executing trades. Crypto holders who provide cryptocurrency tokens into liquidity pools are called Liquidity Providers (LPs). Uniswap uses a smart contract to provide this liquidity using deposits made by a yield farmer looking for a high rate of return in interest rates and a
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