#Liquidity101 #Liquidity101

A Beginner’s Guide to Liquidity in Crypto Markets

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💧 What Is Liquidity?

Liquidity refers to how easily an asset can be bought or sold without causing a big change in its price.

High liquidity: Easy to trade, small price slippage

Low liquidity: Harder to trade, bigger price swings when buying/selling

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🧪 Example:

💧 High liquidity: You can sell 10 ETH instantly at market price

🏜️ Low liquidity: Selling 10 ETH causes the price to crash

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🔄 Why Liquidity Matters

✅ High Liquidity ❌ Low Liquidity

Fast trade execution Orders take longer to fill

Smaller spreads (buy/sell gap) Larger spreads (costlier)

Less slippage High slippage (bad prices)

More stable prices Prone to volatility

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📈 Where Does Liquidity Come From?

On a CEX (Centralized Exchange):

Provided by market makers and other traders

CEX manages the order book

On a DEX (Decentralized Exchange):

Comes from liquidity pools (LPs)

Users deposit token