What is crypto liquidity pool?

What Is Crypto Liquidity Pool?

A liquidity pool is a smart contract that holds two or more tokens so users can trade against it (e.g. swap A for B). Liquidity providers (LPs) deposit tokens and earn a share of trading fees. They can also face impermanent loss if the price ratio of the tokens changes. Only provide liquidity if you understand the risk. In India, LP rewards and any gain/loss on withdrawal may be taxable.