If I create my own coin which only I trade and I have two wallets. Wallet A places a buy for 1 coin at 1 cent. Wallet B fills the order. Wallet A places a sell order for 1 coin at 2c. Wallet B buys it. Rinse repeat and suddenly the coin is trading at 10k USD. Spin up more wallets and you suddenly make it seem like there’s liquidity except there isn’t because you’re not buying anyone else’s coins. This is literally how Scamcoin worked. - you could buy the coin but there were no buyers to offload your coins onto.

In this case you aren't really faking liquidity, you are faking the price, the liquidity is real (ie, you are spending for tx fees, the amount of x traded for y is really happening) vs a centralized exchange where the price is real and the liquidity is fake. There are scams on every turn, but liquidity pools kind of solve this specific problem, so you can have trust in the price even if there was just one guy doing all the exchange.