# Liquidity **$HERO** token liquidity will be deposited into a decentralized liquidity pool. Once it is decided which DEX is located, it will be announced on the project website and on its social media **How Liquidity Pools Work in a Cardano-Based DEX** A liquidity pool in a Cardano-based Decentralized Exchange (DEX) is a fundamental mechanism for facilitating the exchange of digital assets in a decentralized manner without the need for intermediaries. Here's how it works: **1. Liquidity Providers:** * Liquidity providers are users who deposit funds into a liquidity pool to enable the exchange between different digital assets. * Liquidity providers deposit equal amounts of two assets into the liquidity pool. For example, if you want to provide liquidity for the ADA/HERO trading pair, you would deposit an equivalent amount of ADA and **$HERO** into the pool. **2. Price Formation:** * The liquidity pool uses an automated mechanism to establish the price of digital assets based on supply and demand. * When a user makes a trade, the price is determined based on the size of the liquidity pool reserves. The more of an asset there is in the pool, the lower its price, and vice versa. **3. Trading Fees:** * Users making trades pay a small fee that is distributed among liquidity providers in proportion to their share of the pool. * This fee compensates liquidity providers for the risk they take by providing funds to the pool. **4. Benefits for Liquidity Providers:** * Liquidity providers earn profits from both trading fees and changes in the price of assets in the pool. * When withdrawing their funds from the pool, liquidity providers receive a proportional amount of the assets they deposited, plus the earnings generated from fees and changes in asset prices. In summary, a liquidity pool in a Cardano-based DEX allows users to efficiently exchange digital assets without relying on intermediaries. Additionally, it provides liquidity providers with the opportunity to earn profits by providing funds to the pool and participating in the market's operation. --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://adahero.gitbook.io/hero-white-paper/liquidity.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.