On a decentralized exchange (DEX) a liquidity pool is a crowdsourced pool of tokens locked in smart contracts and used to facilitate trades between the assets. Automated market maker (AMM) allow digital assets to be traded in an automatic and permissionless manner through liquidity pools, replacing traditional markets of buyers and sellers.
Ensure that you are aware of the benefits and drawbacks of providing liquidity before taking any action. There are certain risks associated with providing liquidity, including impermanent loss. It is important to note that if you deposit tokens into a liquidity pool and their price changes a few days later, then the amount you lost as a result of that change constitutes your impermanent loss. You can learn more about it by clicking here.

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