let's talk #Liquidity101

In crypto (and in finance more broadly), liquidity refers to how easily and quickly an asset—like a cryptocurrency—can be bought or sold without significantly affecting its price.

Key Points About Liquidity in Crypto:

1. High Liquidity:

Lots of buyers and sellers.

Easy to execute large trades with minimal price impact.

Example: Bitcoin (BTC) and Ethereum (ETH) are highly liquid on major exchanges.

2. Low Liquidity:

Fewer buyers and sellers.

Trades may take longer, and prices may fluctuate more during transactions.

Often seen in smaller or newer tokens with low trading volume.

3. Why Liquidity Matters:

Stability: More liquidity means more stable prices and less slippage (price change during a trade).

Efficiency: Traders can enter and exit positions easily.

Market Health: High liquidity indicates strong interest and trust in an asset or platform.

4. Sources of Liquidity in Crypto:

Centralized exchanges (CEXs) like Binance, Coinbase, etc.

Decentralized exchanges (DEXs) like Uniswap, where users provide liquidity through liquidity pools.

Market makers, including bots and institutional traders who constantly place buy/sell orders to keep markets active.