Liquidity Pool

A liquidity pool is the on-chain reserve of two tokens a decentralized exchange uses to let people trade one for the other.

On an automated market maker such as Uniswap, a pool holds a token paired with an asset like ETH or USDC, and the price is set by the ratio of the two reserves. Buying draws the token out and adds the paired asset; selling does the reverse. The depth of the pool determines how much a trade moves the price, and it is the pool that a rug pull drains.