Liquidity is bandwidth on Bankless

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.

Value transfer has replaced data transfer, and liquidity is the new bandwidth of the Web3 network. The issue is that the liquidity bandwidth is currently thin and unreliable. Take a look at how many tokens are currently sidelined, rather than being used as liquidity. The answer is a majority.

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.

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.

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

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. 

The above discussion may make it seem like only traders should care about liquidity. In Web3, this couldn’t be further from the truth. All users interact with liquidity, as all users need to move in and out of the tokens required to interact with a token-based economy. Similarly, all protocols need to interact with liquidity as they buy/sell and le... See more

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. 

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.