Liquidity metrics Meaning

A set of quantitative measurements used to assess the "tradability" and health of an asset or exchange. The most common metrics include the Bid-Ask Spread (the cost of the trade), Order Book Depth (how much can be traded before the price moves), and Trading Volume (the total value exchanged over a period).

Sophisticated traders also look at the Slippage Ratio, which calculates the percentage price impact of a specific trade size (e.g., a $1M trade). A "liquid" asset will have a low slippage ratio, meaning large orders don't disrupt the market.

Another key metric is the Turnover Ratio, which compares trading volume to total supply to see how "active" the holders are. For decentralized protocols, Total Value Locked (TVL) is often the primary liquidity metric.

However, TVL can be misleading if the capital is not actually available for trading. Therefore, metrics like Volume-to-TVL ratio are used to determine how efficiently the "locked" capital is being utilized to generate fees and facilitate commerce.