1 min read

Liquidity (why is my money all soggy?)

Liquidity is a big word with a simple meaning. It's just the amount of money available to be used/spent/traded. A lot of people outside of crypto talk about liquid assets/cash/etc. and it's the same basic concept.

Cryptocurrencies are traded on a market that tries to balance the price based on supply and demand. If there's not very much liquidity in the supply, then even small amounts of demand can make the price change drastically.

Koin currently has very low liquidity (there are only ~600k liquid tokens out of 99.5 million). This is because the majority of people holding Koin think it's worth more than the current price. As demand grows, the price will rise and more holders will want to supply liquidity. This will help stabilize the price.

It's nuanced, but "providing liquidity" is different from selling your crypto. Liquidity providers are basically depositing their money in a decentralized bank. They can withdraw their money whenever they want (typically with interest).

Earning interest sounds great, so why don't more people do this? For one, becoming a liquidity provider is difficult. It's not a very accessible experience. The other main reason is called "impermanent loss" which I'll address tomorrow.

More tomorrow,


P.S. This post was inspired by a list member sharing an article with me. If you ever want a plain English explanation of a complex topic, shoot your questions my way and I'll do my best.