Definition ∞ Liquidity Pool Deposits are the act of supplying digital assets to a decentralized exchange’s liquidity pool, typically in pairs, to facilitate trading. Users who make these deposits become liquidity providers and earn a portion of the trading fees generated. These contributions are fundamental to the operation of automated market makers.
Context ∞ Liquidity pool deposits are central to the functioning of decentralized finance, enabling peer-to-peer trading without traditional intermediaries. Discussions often center on the risks associated with impermanent loss and smart contract vulnerabilities, as well as the optimization of capital efficiency within various liquidity provision strategies.
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