Cryptocurrency liquidity funds, which facilitate decentralized trading and other financial operations in decentralized finance (DeFi), are collections of cryptocurrency funds secured by smart contracts.

They allow users to trade directly against the fund's liquidity, thus eliminating the need for traditional order books. The funds in liquidity funds are supplied by participants known as liquidity providers (LPs). By contributing their assets, LPs earn rewards, usually in the form of governance tokens or transaction fees.

Liquidity funds are essential for decentralized finance (DeFi) because they provide a constant supply of funds for transactions and facilitate peer-to-peer exchanges of tokens. They are the core technology behind decentralized exchanges (DEXs), such as Uniswap, and enable efficient and convenient trading without the need for intermediaries.

Thanks to liquidity funds, projects obtain a decentralized means to generate markets for their tokens, enhance visibility, and attract users. Investors have the opportunity to earn passive income and diversify their investments. Liquidity funds play a key role in driving the growth and accessibility of DeFi ecosystems.