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How to Think about Liquidity - BlockCrunch

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This post is adapted from a BlockCrunch podcast featuring Michael Feng, co-founder of Hummingbot.

Why is Liquidity Beneficial for Exchanges and Token Projects?

Liquidity offers a major benefit of price discovery: ensuring market prices are fair. When purchasing liquid assets like Apple shares from platforms like Robinhood or E*TRADE, you're assured that reselling them won't lead to significant losses. Conversely, in less liquid markets, such as certain crypto markets, you might encounter a situation where the buying price is 20% higher than the selling price, a phenomenon known as the bid-ask spread.