A decentralized fund locked in a smart contract that allows for peer-to-peer trading and lending. In traditional finance, there is a centralized source of funds such as a bank, which has access to liquidity and is then able to provide loans through their centralized source. In traditional finance, we essentially let a centralized liquidity provider hold a monopoly. In DeFi, however, anyone can be a liquidity provider or market maker vs a handful of large corporations. A liquidity pool is a collection of funds that traders can trade against. In return for providing liquidity to a protocol, liquidity providers earn fees from the trades that happen in their pool.
