The liquidity pool is trading pair on an exchange. They remove the need for order and replace these with on-chain reserves. Transactions against liquidity pools are drawn from these reserves
They are able to create market-making into a couple of clicks. So users can add liquidity to a decentralized exchange and in return receive a share of the exchange’s fees(That the incentive).
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DeFi is about to cross $1B, all running on Ethereum with Maker leading with $350M in assets being locked on Ethereum. Bancor now stands with 5m but keeps rising pretty fast.
Pretty interesting field, Let’s see how it goes in the future
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