Recently, I’ve found that many people don’t really understand the concept of liquidity. The crypto community talks about it every day, but when it comes time to explain it, they get stuck. I also spent a lot of time figuring out the logic behind it, so today I’ll talk about it in the most straightforward way.

Let’s start with everyday examples. If you want to sell a house quickly, would you choose a village house in Hong Kong or a large residential estate? Definitely the estate. Why? Because in an estate, each unit is pretty similar, transaction prices are transparent, there are lots of buyers, and deals can be made anytime. Village houses are the opposite—each one is unique. Buyers need time to choose, and sellers need time to find buyers. That’s the difference in liquidity. The same goes for used iPhones and used Android phones: iPhones are easier to sell, and their prices are more stable.

Put simply, liquidity can be summed up in one sentence: if you want to buy, you can find a buyer; if you want to sell, you can get sold. And it’s not just that you can buy—even if you buy or sell in large amounts, the price won’t swing dramatically. That’s what real high liquidity means.

In crypto, the way liquidity works isn’t actually that complicated. How do decentralized exchanges let you trade anytime? It relies on liquidity pools, abbreviated as LPs. Imagine someone deposits the same amount of two tokens in advance—say, 100 APPLE and 100 BANANA. Then I can swap BANANA for APPLE anytime, or vice versa. Alice swaps 1 BANANA for approximately 1 APPLE, and Bob swaps 1 APPLE for approximately 1 BANANA—just like that.

So why do I say “approximately” instead of “exactly”? Besides transaction fees, every trade changes market supply and demand. When Alice swaps BANANA for APPLE, it means demand for APPLE rises and the supply of BANANA increases. According to basic economics, the price of APPLE will go up, and the price of BANANA will go down. That’s why the size of the liquidity pool is crucial: 100A + 100B is very different from 10000A + 10000B. Carol wants to buy 50 APPLE in one go, and the price surges; Dave can’t even buy 200 BANANA. That’s a sign of insufficient liquidity.

To judge whether the liquidity between two assets is high or low, you look at two indicators: the total size of the LP pool, and the trading volume (using 24-hour and 7-day data).

Let’s talk about a real example. The liquidity pool between LIKE and OSMO is about $1.04 million, containing about $520,000 each of LIKE and OSMO. Over the past 24 hours, the trading volume was $32,000, and over a week it was $234,000. What does this mean? LikeCoin holders can convert LIKE into OSMO anytime, and even further exchange it through the UST stablecoin into USD. The whole process runs nonstop for 24 hours a day, fully automated—no need to worry about whether there are buyers.

I’ve always believed that liquidity is the “life force” of an asset. An asset without liquidity is like a book in a library that no one ever borrows: the knowledge itself isn’t wrong, but dead knowledge can’t spread. The same applies to assets. If an asset lacks liquidity, it can’t be put to use. Its holders just “sit on the stool without doing anything,” while people who can use it well can’t get it—damaging society as a whole.

On the other hand, when LIKE has sufficient liquidity, its price is clear and transparent, and people can trade without identity verification. Only then do everyone feel confident enough to hold it and accept it. Creators can rest assured that they can make a living from creation, and fans are also willing to tip with LIKE. That’s the true value behind what liquidity really means.

Let assets flow like water.