#Liquidity101

🌊 #Liquidity101 – Why It Matters in Crypto

Liquidity = How easily you can buy/sell an asset without moving the price too much.

Here’s a crash course 👇

1. What Is Liquidity?

Liquidity means market depth + activity.

High liquidity = Tight spreads, low slippage, quick trades.

Low liquidity = Price jumps/drops when you trade. Risky.

2. Why It Matters

You want to enter and exit trades easily.

Illiquid tokens can be hard to sell—or cost you more than you expect.

🔁 Example:

Swapping $10,000 in ETH on Uniswap = Easy

Swapping $10,000 in a micro-cap altcoin = Price crash 🧨

3. Sources of Liquidity

Centralized exchanges (CEXs): Binance, Coinbase provide order book liquidity.

Decentralized exchanges (DEXs): Use liquidity pools (e.g. Uniswap, PancakeSwap).

4. What Is a Liquidity Pool?

A smart contract holding two tokens that people can trade between.

🧪 Example:

An ETH/USDC pool lets you swap ETH ↔ USDC, powered by liquidity providers (LPs).

5. Impermanent Loss (For LPs)

If you add funds to a liquidity pool, you’re exposed to price divergence risk.

💡 More liquidity = better prices for traders, but risks for providers.

6. How to Check Liquidity

On DEXes: Use tools like DEXTools, DeFiLlama, or Token Sniffer.

On CEXes: Look at volume and order book depth.

✅ TL;DR:

High liquidity = fast, fair trades.

Low liquidity = price swings, risks, and rug pulls.