In brief, a liquidity pool (LP) is a collection of funds locked in a smart contract for the purpose of facilitating trades on decentralized exchanges. Most LP’s consist of two or more tokens, however some consist of three or more tokens. In its most basic form, a single liquidity pool will hold a pair of tokens in a 50:50 ratio, but there are LP’s with different ratios or multiple tokens. Liquidity providers are rewarded for providing this service by receiving a portion of the trading fees transaction in that pool. LPs are one of the fundamental building blocks of DeFi since they provide access to currency exchanges across almost all tokens in DeFi.