The Art and Science of Native Token Liquidity

“Deep liquidity” means preserved value when trading between tokens. “Thin liquidity” means loss of value when trading between tokens.

We define liquidity in a more targeted manner, as usable liquidity that can be used to exchange one token for another. In a sense, liquidity is the magic juice used to trade and transform tokens. For example, if I have ABC token and I want to trade or “transform” it into XYZ token, I need to interact with liquidity. 

Crypto projects that have grown through token incentives have faced similar challenges to Web2 startups that burned through piles of venture funding. The data is quite clear that most subsidized liquidity is highly mercenary. Hence, we're starting to see more thought out liquidity mining products including OHM and Rift.

The above discussion may make it seem like only traders should care about liquidity. In Web3, this couldn’t be further from the truth. All users interact with liquidity, as all users need to move in and out of the tokens required to interact with a token-based economy. Similarly, all protocols need to interact with liquidity as they buy/sell and le... See more