Bancor invented the concept of "Liquidity Pool" in 2017.
Liquidity pools are smart contracts holding a crowdsourced supply of cryptocurrency used to facilitate decentralised trading of different cryptocurrencies.
AMM pools allow liquidity to flow from an unlimited number of everyday users, lowering the barrier to token creation and yield generation, and increasing resistance to market manipulation and censorship.
Rather than matching buyers and sellers like traditional asset exchanges, AMMs execute trades using the reserve of tokens provided in the liquidity pool by liquidity providers.
The AMM takes a percentage fee from each trade, and distributes the fee to users providing liquidity to the pool.