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  1. Home
  2. /Glossary
  3. /Liquidity Provision
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defi

Liquidity Provision

The act of depositing tokens into a liquidity pool to enable trading on a decentralized exchange.

Definition

The act of depositing tokens into a liquidity pool to enable trading on a decentralized exchange. Liquidity providers earn fees from every trade in their pool but take on impermanent loss risk. It's a core DeFi activity and the foundation of how AMMs like Uniswap function.

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Related Terms

Liquidity Pool

A pool of tokens locked in a smart contract that enables decentralized trading.

Impermanent Loss

The difference between holding tokens in a liquidity pool versus just holding them in your wallet.

AMM (Automated Market Maker)

A type of decentralized exchange that uses math formulas instead of order books to price trades.

1inch

A DEX aggregator that splits trades across multiple decentralized exchanges to find the best overall price.

Aave

One of the biggest lending and borrowing protocols in DeFi.

Across Protocol

A cross-chain bridge that uses an optimistic verification system and a network of relayers to move tokens between chains quickly.

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