Liquidity refers to how easily an asset can be bought or sold in the market without causing a significant change in its price. High liquidity means large trades can occur with minimal price impact.
Liquidity indicators include trading volume, order book depth, bid-ask spread, and market capitalization.
Why liquidity matters: Enables efficient price discovery, reduces slippage on trades, attracts more traders and investors, and indicates market health.
Liquidity in DeFi: Liquidity pools on DEXs, liquidity providers earn fees, TVL as a metric, and liquidity mining incentives.