I just saw someone ask: "Why do I swap tokens on a DEX without anyone selling to me?" Today, I will explain clearly about the so-called liquidity pool.

Actually, it's simple. Imagine a liquidity pool as a water tank, but instead of water, it contains tokens. For example, this tank has USDT and ETH. When you want to swap USDT for ETH, you don't need to find someone selling it to you. You just need to "pour" USDT into the tank, then "scoop" out the corresponding amount of ETH. No order book, no direct seller. Everything is governed by a mathematical formula that automatically balances the price.

But who creates this tank? It's the so-called Liquidity Providers, or LPs. They play a very important role—deposit their tokens into the liquidity pool to enable people like you to trade. And in return for that effort, they earn a trading fee every time someone swaps. It's like a toll fee for "taking the road."

However, I must warn that participating as an LP isn't always easy. If the token price fluctuates strongly, you could lose some asset value, known as Impermanent Loss. Additionally, not all pools are safe. Some contain scam tokens or are from rugpull projects, so be careful.

In summary, a liquidity pool is a "token pond" that allows everyone to swap automatically. No need for a traditional exchange, no direct sellers. It's a great mechanism of DeFi, but it also comes with its own risks. Have you ever used a DEX before?