How does pool liquidity work?

A liquidity pool can be thought of as a pot of cryptocurrency assets locked within a smart contract, which can be used for exchanges, loans and other applications . In traditional finance (Centralised Finance or CeFi), liquidity is provided by a central organisation, such as a bank or a stock exchange.

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How do I stop impermanent loss?

An important starting point for the in-depth studies was the realization that the risk of impermanent loss can be reduced by minimizing divergence in tokens pair prices . If prices between tokens remain constant for AMM, liquidity providers can trade with less fear of losing their funds.

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How do you calculate pool liquidity?

A liquidity pool is a smart contract that holds reserves of two or more tokens and allows anyone to deposit and withdraw funds from them, but only according to very specific rules. One such rule is the constant product formula x * y = k , where x and y are the reserves of two tokens, A and B.

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