How Do Liquidity Pools Work in Decentralized Exchanges?

Liquidity pools are fundamental to decentralized exchanges as they enable seamless trades without relying on a centralized order book. These pools consist of two or more assets, typically cryptocurrencies, that are provided by liquidity providers (LPs) in exchange for a share of the transaction fees. When a user wants to trade on a DEX, the transaction is matched against the liquidity pool, enabling quick and efficient exchanges. For traders, liquidity pools ensure they can easily buy or sell assets without slippage, and for developers, they create a sustainable revenue stream through transaction fees. Additionally, liquidity pools allow DEXs to operate in a decentralized manner, without requiring order books or market makers.
 source:  www.blockchainappfactory.com/decentralized-exchange-development