#Liquidity101

In the context of crypto assets and decentralized finance (DeFi), when "Liquidity 101" is mentioned, it usually refers to a basic introduction to the concept of liquidity in cryptocurrency markets. It is an educational way to present the fundamentals of how liquidity works in this field.

Liquidity 101 is an informal term used as if it were an introductory class (hence the “101,” common in basic university courses in the U.S.), which seeks to explain:

1. What is liquidity in cryptocurrencies?

The ability of an asset to be bought or sold quickly without significantly affecting its price.

For example, Bitcoin and Ethereum have high liquidity because there are many active buyers and sellers.

2. Liquidity in centralized vs decentralized exchanges

In a CEX (like Binance), liquidity is provided by order books.

In a DEX (like Uniswap), liquidity is provided by users through liquidity pools.

3. What is a "liquidity pool"?

It is a set of tokens locked in a smart contract that allows for automatic exchanges.

Users who provide tokens receive trading fees as an incentive.

4. Impermanent Loss

A temporary loss that a liquidity provider may suffer due to the price volatility of the assets they have deposited in the pool.

5. Yield Farming / Liquidity Mining

Strategies to obtain yield by providing liquidity to DeFi protocols.

Why is liquidity important?

It facilitates trades without large price changes.

It reduces slippage (the difference between the expected price and the actual price).

It increases market efficiency and user confidence.