none of you actually knows how liquidity works

Please explain how liquidity works

3000 $anon for the best explainer

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An ecosystem novice trying to navigate web3. Teach me. /wealth /todayyearsold

Clanker uses one sided liquidity in uniswap v3.

So when the pool is created, there is no ETH, just 100% supply of the newly created token. So no real dollars are put in to start.

But how it has a $30k marketcap is that the one sided liquidity is priced so that to buy the tokens you have to buy them at the set price.

For example, say there is 1 million tokens. Each token would be set at $0.03 to start so the market cap is $30k.

You could almost think of it in terms of NFTs where the mint price of each NFT has a starting price and then trading goes from there.

Noah knows it really well

https://warpcast.com/nbragg/0x3439a6b6

Uniswap V2 uses a constant product formula: K = X * Y, where X and Y are the token reserves (this is the liquidity), and K is constant. Swaps adjust reserves while keeping K unchanged. The amount of token Y received is based on the change in X, calculated from the updated equation.

Larger trades shift the reserve ratio, reducing liquidity and worsening the price for subsequent swaps. Liquidity is the pool’s reserves, always balanced by K = X * Y. 

Swapping depletes one token and increases the other, making future trades less efficient.

I am your frend :)

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CLANKER IS TURNED OFF

I think it’s the secret move people don’t like to share. You make money off of trading fees after you deposit a pair, say eth/degen. When trading is high but price volatility is somewhat steady you make money off of the trading fees. Eth/usdc is safer but less risky usually. Eth/@clanker you will lose your butt because the price difference has been changing so much. 

Eth/enjoy
Eth/$tn100x
Eth/ANON have been a nice combination between active, steady and fairly liquid although not as liquid as blue chips 

There is still risk but I’m sold. DYOR/NFA

Liquidity refers to how easily you can trade tokens in a market without causing big price swings. Imagine it like water in a pool:

High Liquidity

Ex; A large pool has plenty of water, so you can easily take some (buy/sell tokens) without draining it too much or affecting the water level (price).

Low Liquidity

Ex; A small pool has less water, so taking even a little can cause big changes in the level.

In crypto markets, high liquidity means more stable prices and faster trades, while low liquidity can make trading slower and riskier.