What is the role of liquidity pools in DEX development?

Liquidity pools are essential for the functioning of DEX platforms, as they ensure that there is always enough liquidity for trades. In a DEX, users can contribute their assets to a liquidity pool, earning a share of transaction fees in return. These pools allow users to trade tokens directly with the pool rather than needing a counterparty for every trade, reducing price slippage and improving the trading experience. Liquidity pools incentivize users to provide liquidity, which helps maintain a healthy trading environment. They also enable features like yield farming, where users earn rewards by participating in these pools, further attracting users to the platform.
soruce: www.blockchainappfactory.com/decentralized-exchange-development