#Liquidity101

🔹 What Is Liquidity in Crypto?

Liquidity refers to how easily an asset (like Bitcoin or Ethereum) can be bought or sold without significantly affecting its price.

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🔹 Why Liquidity Matters

1. Fast Transactions: High liquidity means you can buy/sell quickly.

2. Stable Prices: Less price slippage (sudden price changes).

3. Market Efficiency: Easier price discovery and fewer arbitrage gaps.

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🔹 Types of Liquidity

• Asset Liquidity: How easily a specific crypto (e.g. ETH) can be converted to cash or other coins.

• Market Liquidity: The overall ease of trading in a market or on an exchange.

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🔹 Where It Comes From

• Exchanges: Centralized (e.g., Binance) and Decentralized (e.g., Uniswap).

• Market Makers: Traders or bots providing constant buy/sell orders.

• Liquidity Pools: In DeFi, users deposit crypto into pools (e.g., ETH/USDC) to enable trading.

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🔹 Key Terms

• Slippage: The difference between expected and actual trade price.

• Spread: Gap between buy and sell prices (tighter spread = better liquidity).

• TVL (Total Value Locked): Used in DeFi to measure liquidity.