#Liquidity101
What is Liquidity in Crypto?
Liquidity refers to how easily and quickly an asset (like a cryptocurrency) can be bought or sold in the market without affecting its price.
In simple terms:
High liquidity = You can buy/sell easily with little price change.
Low liquidity = It's harder to buy/sell, and trades may affect the price a lot.
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Why is Liquidity Important in Crypto?
1. Fast Transactions: You can enter or exit a trade quickly.
2. Stable Prices: Prices don’t swing wildly with each trade.
3. Lower Slippage: The price you expect is close to the price you get.
4. More Trustworthy Markets: High liquidity often signals a healthy, active market.
Examples:
Bitcoin (BTC) has high liquidity — many people trade it, so you can easily buy/sell large amounts.
A small token on a new DEX may have low liquidity — even a small trade can change its price a lot.
Liquidity Pools (DeFi)
In decentralized finance (DeFi), liquidity often comes from liquidity pools — smart contracts where users deposit tokens to enable trading. Examples: Uniswap, PancakeSwap.
Users who provide tokens are called liquidity providers and earn fees or rewards in return.
