Liquidity — Queen of DeFi

6 min readDec 22, 2021

Intro

Liquidity. This word repeated hundreds of thousands of times per moment in crypto. It is a basic and fundamental concept that is necessary for orientation in the space. You will come across this word often in our materials. If the king in cryptospace is blockchain technology. Then the queen of blockchain is liquidity.

Liquid, the term itself is already capable of describing for anyone. Think about the river, the water in your hands. Try to explain to yourself what liquid is, what properties does it have?

Liquidity is the ability to buy or sell any asset for money at the current moment in time. It is the ability to move water from glass to glass. In addition to realizing the practicality of the technology of crypto-assets itself — they need to be secured with current money as well. This is that mythical statement “cryptocurrency — money from nothing”, not — cryptocurrency has a rate only because it is based on traditional money. Thats All. Your money given for any crypto asset, be it an NFT, token or coin is a glass of water added to liquidity. You will come across this word often in our materials. If the king in cryptospace is blockchain technology. Then the queen of blockchain is liquidity.

History

When programmers first saw the technology of bitcoin mining and mined the first bitcoins at some time point someone said “I don’t want to do mining, I have a dollar and I want to buy it from you”. That’s how the whole cryptocurrency river was born (bitcoin became liquid). The key point is considered to be May 22, 2010 — programmer Laszlo Heinitz gave 10 thousand bitcoins for 2 pizzas. At current exchange rates, it is 486,580,000 million dollars

This day is called Pizza Day (Pizza Day)

Liquid Market & Asset

Liquidity can be referred to two areas — the market and the asset.

A liquid market means that there are always those who want to buy or sell assets on it. For example the bread market is liquid.

The liquid asset — means that you can easily exchange it for money. For example BTC (Bitcoin) is liquid. You can buy or sell it at any time.

Liquidity Pair

First cryptocurrency — BitCoin(BTC) was born organically. Therefore, it is an analogue of gold, as in the traditional system. Today — almost all cryptocurrencies arise at will of the creators with a commercial purpose. So can we. To do this, we need to think up a name for our cryptocurrency, mint with software some amount of tokens and for the first rate to appear we need to provide it with traditional money.

For example, we want the rate of imaginary token DeFis — DEF = 1 dollar.

The total number of tokens DEF = 100

So we have provided our 100 DEF tokens with a hundred dollars.

We have created a liquidity pair (LP) — 100 DEF/100 USD

Practice

Today, hundreds of projects, technologies, cryptocurrencies with promises of growth, with professional advertising appear in the market every day. Most projects tend to hide their real money supply behind a ton of terms, advertising, design, pretty words, difficult numbers. They release billions of tokens, provide money for only 1 or 2 percent of all tokens under various excuses. to make it easy for a person to get confused. Also many try to get short-term profits, since there is nothing technically new behind the back and taking advantage of the fact that the industry is still young — actions are aimed at attracting new liquidity or to put it simply, people’s money. Knowing what liquidity is and where it is located, we can easily determine the behavior of developers, their ambition and financial capacity.

Here is an example of the main token in the Binance network — BNB

https://poocoin.app/tokens/bnb

We can see in the course viewer that this coin has hundreds of millions of dollars of liquidity. What does that tell us?

BNB in the Poocoin exchange rate observer

There’s a lot of money in the coin. Huh, thanks Cap)
It would be hard to change the price of this coin if someone bought it for $100. Compared to a few hundred million, it’s a drop in the sea
With a greater level of confidence it is a solid and stable coin

Of course, it is too early to draw conclusions, we are only talking about liquidity. Many small and large factors (micro and macro) affect the exchange rate. But now we can easily identify, for example, empty words or promises behind which there is nothing. When any project team makes a beautiful website for $200 and says big words, promising a big income, the official website shows that it has 45 partners, including Vitalik Buterin (creator of token ETH), and the last money from its own purse of $10 thousand and $100 thousand collected from other people adds to liquidity. We can actually understand that we are being embellished with the picture. That in itself such behavior is no longer very acceptable. What other conclusions can we draw?

Conclusions

Liquidity games, piling up of terms and new technologies allow to create a strong field of disinformation in order to lead potential investors and crypto-enthusiasts into a state of emotional buying and do not bear any responsibility for it. This reality is deeper than it seems at first glance and we will try to uncover it in the future.

“A penny saved is two pence clear”. Ben Franklin

This is a unique time when the traditional financial system has begun its fundamental transformation. Everyone on all sides, investors and project creators alike, are on the edge of a spear that flies in uncharted territory. In the experimental zone. For everyone in the cryptocurrency space, there are job opportunities or the potential to increase their capital. And the Queen of Liquidity rules here. Take care of yourself and keep your money safe. It’s not just how to make money in DeFi, but how to stay with your money that’s important right now. This is something that stays in the shadows and something we should always keep in mind. Learn, do your own research (DYOR), study the fundamentals. After all, this is what determines your contribution and determines what your experience will be.