Understanding Liquidity Fundamentals

Defining Liquidity

Liquidity refers to the ease with which tokens can be bought or sold in the market without significantly impacting the price. High liquidity indicates a stable market, facilitating smoother transactions and attracting larger investors.

Liquidity's Role in Market Health

Adequate liquidity is critical to market health as it stabilizes prices, reduces volatility, and builds investor confidence. Insufficient liquidity can lead to severe price fluctuations, increased slippage, and market manipulation risks.