Pool Party is a DeFi platform that enables social investing with self-custody. Users can follow strategies, fund creators, and grow their portfolios together while maintaining full control of their assets.

Do I need to transfer my funds to Pool Party?

No. Pool Party is 100% self-custodial. Your funds remain in your wallet until they're deposited into a strategy's audited smart contract.

No KYC is required to use Pool Party. The platform is completely permissionless and decentralized.

How are strategy creators rewarded?

Strategy creators earn performance fees based on the success of their strategies. This aligns their interests with investors' success.

Is it safe to invest through Pool Party?

Pool Party prioritizes security with multi-layer architecture, smart contract audits, bug bounties, and AI-powered real-time monitoring.

What is a liquidity provider in crypto?

In DeFi, a liquidity provider is anyone who deposits a pair of tokens into a liquidity pool so others can swap against it. In return they receive LP tokens and earn a share of the trading fees. This is different from a TradFi liquidity provider, which is usually a bank or institution quoting a bid-ask spread.

What is a liquidity pool?

A DeFi liquidity pool is a pair of tokens locked in a smart contract that acts as a digital reserve, letting people swap instantly without an order book. An automated market maker (AMM) prices the swaps using a formula, and the pool pays a fee on each swap to its liquidity providers.

How do liquidity providers make money?

They earn a pro-rata share of the fee charged on every swap in their pool. The more volume the pool sees and the larger your share, the more fees you earn. Those fees are real but variable, and they work against impermanent loss, so the net result is fees minus impermanent loss.

How do you exit a liquidity pool?

You redeem (burn) your LP tokens, which returns your share of the two tokens in the pool plus the fees earned. Because the pool rebalances as prices move, the mix of tokens you get back can differ from what you deposited.

How risky are liquidity pools?

The main risk is impermanent loss when the two token prices diverge. There is also smart-contract risk, slippage in shallow pools, and rug-pull risk in unknown pools. Stablecoin and correlated pairs tend to carry the least impermanent loss.

Guide

What is a liquidity provider?

By Surfista Crypto · Reviewed by Evan Luthra · Updated July 1, 2026

A liquidity provider in DeFi is anyone who deposits a pair of tokens into a liquidity pool so others can swap against it, earning a share of the trading fees in return. This is the retail, DeFi meaning, not the institutional market maker of traditional finance.

DeFi vs TradFi: two different meanings

Search results blur two things. In traditional finance a liquidity provider is usually an institution, like a bank, quoting a bid-ask spread on an exchange. In DeFi it is an everyday user who deposits a token pair into a pool. This guide is about the DeFi sense.

TradFi liquidity provider	DeFi liquidity provider
A bank or market-making firm	Anyone with a wallet
Quotes a bid-ask spread on an order book	Deposits a token pair into a pool
Earns the spread	Earns a share of swap fees

How a liquidity pool works

A DeFi liquidity pool is crowdsourced funds, a token pair, locked in a smart contract. An automated market maker (AMM) prices swaps with a constant-product formula, so AMMs replace the traditional order book. Anyone can trade against the pool at any time, and each trade pays a small fee to the providers.

Becoming a provider: LP tokens and fees

To provide liquidity you deposit equal value of two tokens, not equal quantity, and receive LP tokens representing your pro-rata share. You then earn that share of every swap fee. To exit, you redeem or burn the LP tokens and get back your share of the pool. Pools power DEX swaps, lending, stablecoin swaps and yield farming, across protocols like Uniswap, Curve and Balancer, and on Base through Aerodrome.

Where this leads

Concentrated liquidity earns more fees on the same capital but needs active management.
Impermanent loss explained with a worked example, and the calculator.

Frequently asked questions

What is a liquidity provider in crypto?: In DeFi, a liquidity provider is anyone who deposits a pair of tokens into a liquidity pool so others can swap against it. In return they receive LP tokens and earn a share of the trading fees. This is different from a TradFi liquidity provider, which is usually a bank or institution quoting a bid-ask spread.
What is a liquidity pool?: A DeFi liquidity pool is a pair of tokens locked in a smart contract that acts as a digital reserve, letting people swap instantly without an order book. An automated market maker (AMM) prices the swaps using a formula, and the pool pays a fee on each swap to its liquidity providers.
How do liquidity providers make money?: They earn a pro-rata share of the fee charged on every swap in their pool. The more volume the pool sees and the larger your share, the more fees you earn. Those fees are real but variable, and they work against impermanent loss, so the net result is fees minus impermanent loss.
How do you exit a liquidity pool?: You redeem (burn) your LP tokens, which returns your share of the two tokens in the pool plus the fees earned. Because the pool rebalances as prices move, the mix of tokens you get back can differ from what you deposited.
How risky are liquidity pools?: The main risk is impermanent loss when the two token prices diverge. There is also smart-contract risk, slippage in shallow pools, and rug-pull risk in unknown pools. Stablecoin and correlated pairs tend to carry the least impermanent loss.