What is Defi liquidity pool?

This lock-up of assets is done to facilitate the crypto trading by providing greater liquidity. This concept of Liquidity pools became popular in DeFi, after the launch of the famous DeFi liquidity pool Uniswap.

What is the difference between liquidity and illiquidity?

Liquidity is comparable to having lots of cashiers. That would speed up orders and transactions, making customers happy. On the other hand, illiquidity is comparable to having only one cashier with a long line of customers. That would lead to slower orders and slower transactions, creating unhappy customers.

What is liquidity and why is it important?

Liquidity is the extent an asset can be quickly purchased or sold at a price that reflects its true value; it’s at the heart of any functional market. A lack of liquidity correlates to higher-risk categories and is priced accordingly. Without liquidity, or anyone to purchase an asset, the demand, and subsequently the value, of the asset drops.

What does low liquidity mean?

Low liquidity also means low volume, which leads to a pesky thing called slippage, where your order executes at different tiers of decreasingly preferential prices. For example, when Elon Musk buys a massive $100M order of Bitcoin, his order might even move the market as the order is being executed.