In DeFi systems a liquidity pool refers to a "pool" of cryptoasset (typically stablecoins) that are locked in a smart contract. The pool provides liquidity for end users who want to use the underlying crypto asset for swap transactions who in turn pay transaction fees, theoretically these transaction fees are then used to incentivize the stablecoin holders who stake their tokens in the pool by generating yield in return for liquidity.
See also counterparty risk, DeFi, and deposit insurance.
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