Liquidity can refer to two things. Most commonly, it is used to describe the ability to freely buy and sell a cryptocurrency. It can also mean the amount of cryptocurrencies available to trade within a liquidity pool on a decentralized exchange.
Here is a explanation so its easy to understand:
Imagine you have a jar of marbles that you can easily buy and sell. If you have a lot of marbles and there are many people who want to buy them from you or sell them to you, then your marbles are considered “liquid.”
In the context of money or financial markets, liquidity means how easy it is to buy or sell something without causing its price to change a lot. If there’s a lot of people wanting to buy or sell a certain thing, like a cryptocurrency or stock, it’s considered liquid. But if there are fewer people interested in buying or selling, it’s less liquid.
Having good liquidity is important because it means you can quickly turn your marbles (or assets) into money without affecting their value too much. It’s like being able to exchange your marbles for money easily, without having to wait a long time or getting a bad deal.