Onchain Liquidity

Definition ∞ Onchain liquidity refers to the ease with which a digital asset can be converted into another asset directly on a blockchain network, typically through decentralized exchanges (DEXs) or automated market makers (AMMs). It is measured by the depth of available assets in liquidity pools and the ability to execute large trades without significant price impact. High onchain liquidity is essential for efficient trading and price stability in decentralized finance. It minimizes slippage for participants.
Context ∞ Crypto news often reports on the state and evolution of onchain liquidity, analyzing its impact on trading volumes, price discovery, and the overall health of the DeFi market. The design of AMM protocols and the incentives for liquidity providers are frequently discussed topics. Challenges include attracting sufficient capital to liquidity pools and managing impermanent loss for providers.