Liquidity Pool is a collection of funds locked in a smart contract. Liquidity Provider will place the equal amount of a pair of assets into a Pool, this amount will be locked and unavailable to make other transactions like send or receive. With each pool created, the Provider will receive a new token representing their shares, called Token Pool. The transaction fee will be paid on each Swap transaction, divided by shares.
For example, a provider wants to put 2 ETH into ETH/USDT pool, he has to put both 2 ETH and the corresponding amount of USDT (market price: 2621.15 USDT per ETH), which means, he has to put 2 ETH AND 5242,3 USDT into the pool. The amount that provider put into the ETH/USDT pair accounted for about 0.01% of that pool. There is a 0.3% fee for all trades on this pair, the fee will be shared for all providers of this pool, thus, the provider will earn 0.01% of the 0.3% fee for every ETH/USDT swap transaction.
