# Liquidity Pools

In the context of decentralized finance protocols (DeFi), a liquidity pool is a smart contract that receives tokens and delivers a receipt for that deposit called a **Liquidity Provider Token** or **LP token**. Liquidity pools in DeFi serve multiple functions, with their primary function being to facilitate the provision of financial services in a decentralized manner.&#x20;

\


In this project, a liquidity pool is used to provide the service of an investment fund. In other words, a liquidity pool represents a set of tokens whose liquidity token serves as a share. Unlike a traditional investment fund, the assets are held by the smart contract and not by a third party.

\
