Part 2/8:
At the heart of decentralized exchanges (DEX) are liquidity pools, which allow traders to swap one cryptocurrency asset for another. When a trader, for example, wishes to exchange Ethereum for Arbitrum, they do so through a DEX like Uniswap. This process attracts transaction fees that are paid by the trader—and notably, a percentage of these fees goes to individuals who provide liquidity to the pools facilitating these trades.
By contributing to the liquidity pool for a particular asset pairing, such as Ethereum and Arbitrum, liquidity providers can earn a passive income from the fees generated by traders utilizing the exchange. This represents a fantastic opportunity for those looking to optimize their cryptocurrency holdings.