Economics
Beginner
Updated 1/15/2025
What is
Liquidity?
The ease with which an asset can be bought or sold without significantly affecting its price - high liquidity means easy trading with minimal slippage.
Liquidity refers to how easily an asset can be converted to cash or traded for another asset without causing significant price movement. In cryptocurrency, high liquidity means you can buy or sell large amounts quickly at stable prices, while low liquidity leads to price slippage and difficulty executing trades. On Ergo, liquidity is provided through decentralized exchanges like Spectrum Finance, where users can trade ERG and native tokens. Liquidity providers (LPs) deposit assets into pools and earn trading fees in return.
Key Points
- High liquidity = easy trading with minimal price impact
- Low liquidity = price slippage on larger trades
- DEXs like Spectrum Finance provide on-chain liquidity
- Liquidity providers earn fees for depositing assets
- Total Value Locked (TVL) indicates ecosystem liquidity
- More liquidity attracts more traders and users
Use Cases
1
Trading ERG and native tokens on DEXs
2
Earning passive income as a liquidity provider
3
Evaluating token tradability before investing
4
Understanding market health and trading conditions
5
Arbitrage opportunities between venues
Technical Details
On Ergo DEXs, liquidity exists in Automated Market Maker (AMM) pools using formulas like x*y=k. When you trade, the pool rebalances and the price adjusts based on the ratio change. Larger pools have less slippage. Ergo's eUTXO model enables unique AMM designs with features like concentrated liquidity. Trading fees (typically 0.3%) are distributed to liquidity providers proportional to their share.
Related Infographics
Related Articles
Frequently Asked Questions
Questions about Liquidity
Common questions about this topic
How to get started with Ergo?
Start by getting a wallet (Nautilus for browser, Terminus for mobile). Back up your seed phrase securely offline. Get some ERG from an exchange (Gate.io, KuCoin) or DEX (Spectrum). Make a test transaction. Then explore: try DeFi on Spectrum, check out NFTs, or dive into the technology if you're a builder.
How-to
Getting Started
What can I do with Ergo?
Ergo supports a full ecosystem: trade on Spectrum DEX, use SigmaUSD stablecoin, mix transactions with ErgoMixer, collect NFTs on SkyHarbor, mine with GPUs, lend/borrow on DuckPools, bridge to other chains via Rosen, and build dApps with ErgoScript. It's a complete platform for decentralized finance and applications.
Explainer
Getting Started
How to use Spectrum DEX on Ergo?
Connect your Nautilus wallet to Spectrum Finance, select tokens to swap, review the rate and slippage, then confirm. Spectrum uses AMM liquidity pools for instant trades. You can also provide liquidity to earn fees. All trades are atomic - they complete fully or not at all, with no front-running possible.
How-to
DeFi
How to provide liquidity on Ergo?
On Spectrum Finance, select a pool, deposit equal value of both tokens, and receive LP tokens representing your share. You earn a portion of all trading fees. Withdraw anytime by returning LP tokens. Be aware of impermanent loss if token prices diverge significantly.
How-to
DeFi