The degree to which an asset can be bought or sold quickly without causing a significant change in its price. In decentralised markets, liquidity is supplied by participants who deposit assets into pools or order books, enabling efficient price discovery and low-slippage trade execution.
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- Liquidity measures how readily an asset converts to another asset at a stable price. High liquidity means large trades move the price only slightly, while thin liquidity causes price slippage and wide spreads.
- In decentralised finance, liquidity is contributed by users who deposit pairs of assets into pools or post orders, in exchange for trading fees. The available depth determines the cost and feasibility of swaps executed through automated market makers and exchanges.