GlossaryIntermediate
Liquidity
The amount of an asset available to trade or exchange without causing a large price change.
Liquidity describes how readily an asset can be bought or sold near its current quoted price. In a decentralised exchange, liquidity may be supplied to a pool that traders use for swaps.
Thin liquidity can make a trade move the market price substantially. High displayed liquidity is not a guarantee that a market is stable or free from smart-contract and counterparty risks.
Examples
- A large trade in a small liquidity pool may receive a worse execution price.
- Liquidity providers may receive fees but can also face losses and changing pool balances.