A smart contract holding paired token reserves that enables trading. Liquidity providers deposit equal value of two tokens and receive LP tokens representing their share. Trading fees are distributed proportionally to LP token holders.
AMM
Liquidity Pool
Related terms in AMM
Automated Market Maker (AMM)
A smart contract that holds token reserves and enables trading without an order book. Prices are determined al...
Constant Product Formula
The pricing invariant x * y = k, where x and y are token reserves and k is a constant. When one token is bough...
Liquidity Provider (LP)
A user who deposits tokens into a liquidity pool to facilitate trading, earning a share of trading fees in ret...
LP Token
A token minted to liquidity providers representing their share of a pool. LP tokens can be burned to withdraw ...