A decentralized liquidity protocol is a set of automated rules on a blockchain that enables the exchange of digital assets without relying on centralized order books or intermediaries. These protocols typically use automated market makers to pool assets provided by users, allowing for continuous trading. They facilitate efficient asset swaps and provide a mechanism for users to earn fees by supplying capital. Such protocols are fundamental components of the broader decentralized finance ecosystem.
Context
The efficiency and impermanent loss associated with these protocols are frequent topics in crypto news, especially concerning new models designed to optimize capital usage. Regulatory scrutiny regarding their structure and potential for market manipulation is also a continuing discussion.
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