Liquidity
The ease with which an asset can be bought or sold without significantly affecting its price.
In-Depth Explanation
Deep liquidity means large trades execute with minimal price impact. In DeFi, liquidity lives in pools and order books. Liquidity fragmentation across chains and venues is a persistent challenge. Protocols compete for liquidity through incentives, but mercenary liquidity leaves when rewards dry up. Sustainable liquidity comes from organic trading demand.
Related Terms
Liquidity Pool
LPA smart contract holding paired assets that enables trading, lending, or other DeFi activities.
Slippage
The difference between the expected price of a trade and the actual executed price.
Total Value Locked
TVLThe total value of crypto assets deposited in a DeFi protocol or across all of DeFi.
More in DeFi Primitives
View all →Automated Market Maker
AMMA smart contract that provides liquidity and enables trading using a mathematical formula instead of an order book.
Liquidity Pool
LPA smart contract holding paired assets that enables trading, lending, or other DeFi activities.
Collateralized Debt Position
CDPA loan where users deposit collateral to mint or borrow assets, with liquidation risk if collateral value falls.
Lending Protocol
A DeFi application that matches lenders with borrowers through smart contracts, enabling permissionless borrowing and lending.