Liquidity Pools Defined For Blockchain Developers

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Blockchain is deeply connected to money.

Money is also one of the main business domains in blockchain. As a good software developer, you always need a deep understanding of both the technology that you’re using, and the underlying business domain you’re serving as well.

So if you’re someone who wants to build for the revolutionary new technology of blockchain, you’re going to need to learn a lot of financial terminology.

One financial term you’ll hear over and over again is “liquidity pools”, and I’m going to explain the term shortly.

At the moment, DeFi (decentralized finance) is the fastest growing sector in crypto. And one of the most popular DeFi projects is Uniswap: a decentralized exchange for trading all sorts of ERC20 tokens.

The cool thing about Uniswap is that it’s fully decentralized. There’s no company involved, and the trading of tokens is automatically facilitated via Smart Contracts on Ethereum. So if you trade tokens on Uniswap (i.e. trade Ether for another token) there is no third-party custodianship. You’re in full control of any tokens you may procure on the exchange.