Knowla / Learn / Pools guide / Lesson 1
Lesson 1 of 7
What a liquidity pool is
How a pool works, who pays the liquidity provider, and what one row of the Pools table stands for.
A liquidity pool is a pot of two tokens (sometimes more) held by a smart contract on a decentralised exchange. Instead of matching buyers with sellers, the exchange lets anyone swap one token for another against the pot. The people who put tokens into the pot are liquidity providers, or LPs.
Every swap pays a small fee, a fraction of a percent of the trade. The fees go to the LPs in proportion to each one's share of the pool. Put in 1% of a pool and you earn about 1% of its fees. On concentrated-liquidity designs you earn them only while the price stays inside the range you chose.
What you earn, and what you risk
- Trading fees, which depend on how much the pair is traded.
- Sometimes reward tokens, paid by the project to attract liquidity.
- The risk that the two tokens move apart, called impermanent loss (lesson 3).
- Smart-contract and token risk, which no table can measure.
One row of the table
Each row in Knowla's Pools table is one pool: the pair, the exchange, the chain, and a handful of numbers about it. The numbers describe the pool, not your position. Knowla never holds your funds. The next lessons take the columns one at a time.
See it on the data.
Open the Pools table