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Liquidity Guide

Updated: Jun 13, 2021

Liquidity Guide - Mathematical Analysis For SafeMoon

Note: For a Mathematical understanding of how SafeMoon is affected specifically then please watch the video from SafeMoonMark

What is Cryptocurrency Liquidity?

The term liquidity is generally used in trading markets to describe the ease by which an asset can be converted into cash without difficulty. In terms of cryptocurrencies, liquidity is the ability of a coin to be easily converted into Fiat or other coins. If an asset or item is considered Liquid then it means that it can be sold or purchased easily at a fair market value with no hassles, Such as Gold or Silver. However, if an asset is considered Illiquid it will take more work and time to secure a deal. Your Home or Car is an example of an Item being Illiquid. It is thus easier to buy or sell cryptocurrencies in a liquid market since buy or sell orders will be filled more quickly due to the larger number of market participants. Essentially, this means it is possible to enter or exit a trade at any moment, given the fast-paced nature of the cryptocurrency markets. Liquidity is a concept that is important to understand when dealing with cryptocurrencies. In terms of defining liquidity, it is essentially the ability of an asset to be quickly converted into fiat. In the context of cryptocurrency liquidity, it refers to the ease with which a coin can be converted into fiat or other coins.

Why is Liquidity important?

High liquidity in the marketplace is an ideal situation as it makes for improved prices for all concerned due to a large number of buyers and sellers in the marketplace. A buoyant marketplace with a high level of trading activity tends to create an equilibrium market price that is acceptable for all. High liquidity also ensures that prices are stable and not prone to large swings resulting from large trades which could affect cryptocurrency prices while fuelling increased volatility and risks for the general market. In a liquid market, prices are stable enough to withstand large orders because of the large number of market participants and their orders. High liquidity also allows for greater technical analysis accuracy since price and charting formation in a liquid market is more developed and precise.

Factors affecting Liquidity

One of the key factors affecting liquidity in the cryptocurrency market is trading volumes. When a higher number of cryptocurrency exchanges provides a larger number of people more opportunities to trade their coins, which in recent years, the number of exchanges has multiplied. This then increases the frequency and volume of trading that helps to enhance liquidity. Usability is another factor affecting liquidity. The more cryptocurrencies used as a method of payment, the more liquid they become. This is why it is important for cryptocurrencies to be accepted by merchants as a means of payment, so as to further boost the use of cryptocurrencies for transactions as will the SafeMoon Card. Finally, regulations play an important role. Different countries have adopted different stances on cryptocurrencies with them being banned in several, allowed in some, or disputed in others. Despite the situation, cryptocurrencies are growing at a fast pace, so a clear stance by the authorities on issues like consumer protection and taxation should result in more people getting involved thereby affecting its liquidity.

So how does Liquidity affect SafeMoon?

SafeMoon already has over $250 Million in a Liquidity Pool over at Unicrpyt with a second liquidity pool being built as we speak. These Pools are the liquidity that allows the high levels of market trading (High Liquidity) on a day-to-day basis. The $250 Million over at Unicrypt has been locked away for 4 years, Now this gives the SafeMoon Protocol its Value which in the long term will allow for future inverstors to trade SafeMoon with confidence, which in doing so create the circle of adding more Liquidity to the Liquidity pool meaning the cycle will repeat as time goes on.

SafeMoon at its core with Tokenomics is where the Liquidity comes from, so if you'd like to learn more about SafeMoon Tokenomics Click here


SafeMoon Educator (Writer)

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