Part 5/7:
One of the appealing aspects of liquidity pools is the ability for individual users to become liquidity providers. By depositing tokens into a pool and maintaining a specific ratio of assets, users receive liquidity provider tokens in return. These tokens act as receipts and signify the user’s stake in the pool.
As trades happen within the pool, each transaction incurs a fee (often around 0.3%), and these fees are distributed among liquidity providers based on their share of the pool. This model enables users to earn passive income simply by locking their assets in decentralized pools.