Educational - Liquidity In DEFI Simply Explained

Hi guys :)

I've made a video of one of the most important things to understand in DEFI, Dexes, and crypto in general, Liquidity!

https://www.youtube.com/watch?v=_vsg8P9Gq-0

In the video, I will explain what is liquidity with a lot of examples and I will simplify it for you so you can level up your DEFI understanding.

We will look at the biggest decentralized exchange on Binance Smart Chain (BSC) which is PancakeSwap - in order to understand what it is.

The information in the video applies to any other DEX on any other blockchain (It works the same).

Liquidity is one of the most important things in decentralized exchanges and without it, the DEX's actually doesn't worth anything.

The more liquidity decentralized exchanges have, the better prices the users are going to pay when swapping tokens and they will suffer less from price impact and slippage.

That's why most of the decentralized exchanges are "fighting" for liquidity by offering Yield Farm and Staking programs.

Basically, the war is between blockchains and decentralized exchanges, the one with the most amount of liquidity wins.

Imagine a decentralized exchange like a robot that holds tokens in pairs (for example Cake-BNB).

The robot in our story is a smart contract that it's is to preserve the same amount of BNB and Cake in the reserves.

Anytime someone is buying or selling cake to the contract (robot) he changes the balance and therefore the contract is giving the user a "worse price" for the swap (Slippage).

The bigger the swap, the bigger the slippage is gonna be. The more liquidity the "robot" has, the lower the slippage will be.

In this video, I am going to explain to you all these kinds of concepts in an easy way, so after watching the video you will finally understand what does liquidity means on decentralized exchanges and why it's so important.

Hope you like it, and lemme know if you have any questions.

Johnny.