Liquidity is bandwidth on Bankless

We define liquidity in a more targeted manner, as usable liquidity that can be used to exchange one token for another. In a sense, liquidity is the magic juice used to trade and transform tokens. For example, if I have ABC token and I want to trade or “transform” it into XYZ token, I need to interact with liquidity. 

In DeFi/Web3, liquidity is used to define tokens (value) that is provided or parked almost anywhere. While there is nothing wrong with this general use of the term per se, here we will try to be a little more specific.

In Web3—the internet of value—liquidity is the new bandwidth. Data bandwidth allowed communication to flow freely, but liquidity bandwidth enables value to flow freely.

“Deep liquidity” means preserved value when trading between tokens. “Thin liquidity” means loss of value when trading between tokens.

So, what happens when the maximum amount of liquidity bandwidth is made available? This is the final state of liquidity bandwidth, where Tokemak will fulfill its destiny as the liquidity engine powering the entire network.

The problem is that we’re still in the dial-up phase. Liquidity is fragmented and inefficient, there are barriers to entry, we use basic primitives like liquidity mining, and we’re only just discovering the potential. 

In other words, you can trade at the price of a market when there is deep liquidity. With thin liquidity, the price moves significantly as you interact with it. 

Trying to imagine what will be built upon the coming deep liquidity bandwidth is as difficult as someone in 1995 with dial-up internet trying to imagine Netflix streaming videos to a mobile phone. The future innovation that deep liquidity bandwidth will unlock will be even more significant. 

The decentralized economy will truly be unleashed.As we move towards a future with broadband liquidity, it becomes challenging to imagine what, exactly, that future looks like. While we know that deep liquidity will enable reliable pricing and less volatility, the implications are much more intriguing.