#Liquidity101 #Liquidity101: Understanding Liquidity in Finance and Crypto

Liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its price. In traditional finance, highly liquid assets include stocks and government bonds, while real estate or collectibles are considered illiquid due to longer selling times and price volatility.

In the crypto world, liquidity is equally important. A cryptocurrency is considered liquid if it can be bought or sold quickly with minimal price changes. This is typically seen with high-volume coins like Bitcoin and Ethereum on major exchanges. Liquidity is crucial for traders, investors, and platforms because it affects pricing accuracy, market stability, and overall user experience.

Factors influencing liquidity include trading volume, exchange listings, market maker activity, and the size of the order book. Low liquidity can lead to slippage, where the actual execution price differs from the expected price, which is a risk for large or urgent trades.

Decentralized finance (DeFi