The role of Liquidity Pool
Like traditional trading exchanges, the Order Book paradigm-based centralized cryptocurrency exchanges where the buyer and seller make the order. Meanwhile the buyer tries to purchase an asset at the price as low as possible, the seller tries to sell it at the price as high as possible. In order to successfully trade, both buyer and seller must agree on the price.
What happens if either buyer or seller do not agree on the price? Or what occurs if there is not enough liquidity to conduct the order? That’s time that the concept of the Market Maker needs to be promoted. The Market Maker creates the trading condition by being willing to buy and sell a particular asset. Therefore, providing the liquidity and allowing traders to make a transaction without the appearance of other buyers or sellers.
In decentralized finance (DeFi), the deep dependence on out-side Market Makers can lead to the relatively slow and costly transaction that the Liquidity Pool can solve.