#Liquidity101

Liquidity refers to how easily a cryptocurrency can be bought or sold without significantly changing its price. High liquidity means there are many buyers and sellers, allowing fast trades with minimal price impact—common in large tokens like Bitcoin and Ethereum. Low liquidity, often seen in smaller or newer coins, can cause price slippage and make trading difficult.

Liquidity is crucial for efficient markets, reducing costs and ensuring price stability. On centralized exchanges (CEXs), liquidity comes from order books, while decentralized exchanges (DEXs) use liquidity pools, where users deposit token pairs (like ETH/USDC) to enable trading and earn fees.

Good liquidity leads to tighter bid-ask spreads, faster transactions, and more stable prices. Poor liquidity increases risks and volatility. Crypto traders and investors often check liquidity to assess how easily they can enter or exit positions. Liquidity is a key sign of a healthy, active crypto market.