Glossary
Liquidity Pool
A smart contract that holds reserves of two or more tokens and prices trades between them via a deterministic formula instead of an order book.
A liquidity pool is the inventory side of an AMM. Liquidity providers deposit assets in fixed ratios and receive LP tokens representing their share. Traders swap against the pool, and the formula (constant product, stable-swap, concentrated, …) determines the price.
LPs earn a cut of every swap fee proportional to their share, but they also bear impermanent loss as the pool rebalances. The size and depth of the pool determine how much slippage a trade incurs.