What is Liquidity?

Liquidity is how quickly an asset converts to cash at close to its actual value. Money in a checking account is perfectly liquid. Shares in a major listed company are very liquid — tons of buyers and sellers, so you can trade instantly. A house, a niche collectible, or a stake in a private business is not: you can sell, but slowly, and often for less than it's nominally worth.

For a business, liquidity is survival. Assets on paper don't pay wages; only cash does. A company can be worth a great deal and still be unable to meet payroll on Friday, and the second fact is the one that ends it.

In crypto, 'liquidity' usually means the pool of funds in a decentralized exchange that lets people trade a token. Thin liquidity is what makes prices swing violently on small trades, and it's the condition every manipulation scheme depends on. Check it before buying any small token: getting in is easy, and getting out of an illiquid asset is where people get trapped.