#Liquidity101 Liquidity represents the ease with which an asset can be bought or sold without significantly affecting its price.
đ Concrete example:
On a very liquid exchange (e.g., Binance), you can buy or sell 1 BTC instantly, at a price very close to the market.
On a less liquid exchange, selling 1 BTC can cause the price to drop because there are few buyers available.
đ Why is liquidity important?
đ§Ș Liquidity in DEX vs CEX
đ§ Liquidity Pools
On DEX, liquidity is provided by liquidity providers (LPs) who deposit 2 tokens into a pool (e.g., ETH/USDC).
In return, they receive:
a share of the transaction fees
sometimes rewards (yield farming)
But beware:
â ïž Risk of impermanent loss if prices change too much between the two tokens.
đ How to measure liquidity?
Trading volume (24h)
Order book size (for CEX)
TVL (Total Value Locked) in a DEX
Slippage during transactions
In summary
Liquidity is an essential pillar for the proper functioning of crypto markets.
Good liquidity = easier, safer, and fairer transactions.
