At its simplest, a pool is a collection of one kind of asset. Generally speaking, if you have that kind of asset, you can add it to the pool (as with all simple machines in DeFi, it is only powerful when open and permissionless). Generally speaking, when you add your asset to the pool, you get some token in return to represent the position you now have in the pool. ## Wrap The best example of this kind of machine is [WETH](https://etherscan.io/token/0xc02aaa39b223fe8d0a0e5c4f27ead9083c756cc2), or Wrapped Ether. ETH is the native token of the Ethereum network itself (which denominates transaction fees in ETH), whereas every other fungible token adheres to the ERC20 standard. This means that ETH does not have the same interface as other fungible tokens, which can be a problem for particular kinds of applications built on top of Ethereum that rely on all fungible tokens having a common set of functions (i.e. 'exposing the same interface'). Therefore, some folks created an ERC20-compliant contract called WETH, which accepts ETH and "wraps" it, returning the exact amount of WETH (and ERC20 representation of ETH) to the account that sent ETH into the pool. Another example of this is [wrapped AMPL or wAMPL](https://docs.ampleforth.org/learn/about-wrapped-ampl). Explaining what AMPL is beyond the scope of this note, but you can read the linked page to get a sense for why wrapping ERC20 tokens is sometimes necessary (basically: it makes for easier accounting in centralized exchanges). ## Merge From this simple idea of "put some token in, get another token out" we can build increasingly complex series of interactions. The next kind of pool to learn about is often called a "Liquidity Pool". Here, the pool generally contains two kinds of tokens, for instance: DAI and ETH. In order to contribute to the pool, you need to add both DAI and ETH, in the same ratio as currently exists in the pool. In return for this, you will receive another token with represents your position as a Liquidity Provider, or LP. This is why we call the action "merge": you put two tokens into the pool in some predefine ratio, and get one token out which represents your right to a portion of liquidty in the pool. This token is often another ERC20 token, which can then be traded on secondary markets. Trading LP tokens is often at the heart of what is known as "yield farming" in DeFi. However, the token which represents the liquidity you added need not be fungible. It could, for instance, be an NFT, as in the case of [[Uniswap V3]]. Other examples of where we can find this version of pools being used include Set, Balancer and Yearn. ## Split Rather than putting two tokens in and merging them into one token we take out to represent the portion of liquidity in a pool we have the right to claim, we can go in the opposite direction. This is particularly useful for prediction markets like Gnosis and Augur, and for financial products like [Element](https://www.element.fi/). In the case of prediction markets, the idea is that the pool is composed of one kind of collateral, e.g. DAI. You can contribute further DAI in order to participate, for which you receive two "conditional tokens": typically one "yes" and one "no". Each of these conditional tokens represents the possible outcome of the event the pool is being used to predict. You can sell you "no" tokens, which means you are long "yes" and think the event will happen, or vice versa. In the case of fixed and variable yield market products like Element, you can contribute liquidty to a pool - also only in one token - and it will return you both "Prinipal" and "Yield" tokens. If you'd like to understand the concept in greater detail, we recommend [this page of their documentation](https://docs.element.fi/element/concepts-overview). Author: cryptowanderer