Altcoins Talks - Cryptocurrency Forum
Cryptocurrency Ecosystem => DeFi tokens => Topic started by: RSRS on July 25, 2021, 06:40:46 AM
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Since last year, we have been bombarded with the term “liquidity,” albeit it was mostly in reference to the US Federal Reserve flooding the economy with fiat liquidity. In simple terms, liquidity is the ease with which an asset can be converted into cash.
In crypto land, liquidity is how quickly one coin can be converted to other coins or cash. A liquid market makes it easier and cheaper to buy and sell crypto assets.
Understanding the liquidity pools
Traditional stock exchanges or a centralized crypto exchanges like Binance and Coinbase use the Order Book model where buyers and sellers place their orders. Buyers want to pay the lowest price while sellers want the highest price possible.
What if buyers and sellers don’t agree on the price? What if you want to buy something, but there is no seller at the moment? When a seller appears, they might demand much higher than what you’d be offering to pay.
That’s the issue “market makers” solve by offering to buy or sell an asset. Market makers provide liquidity, allowing people to buy and sell without having to wait for the counterparty to show up.
More Information (https://cryptonews.net/en/news/defi/1164943/)