Alexander Lorenzo explains how liquidity determines risk in crypto projects. He defines a liquidity pile for buying and selling coins, maps it to a risk matrix updated monthly, and shows how market conditions shift the danger level of any trade.
We have an entire structure of essentially how to identify what's high risk and low risk, and it's accordance to liquidity. And then we're going to go into this. I'm not going to go into the dynamic. It gets crazy, but it's not even liquid. There's not like one standalone, you know, kind of benchmark for liquidity. The amount of liquidity of the market changes on a substantial basis. And this might be a little bit high level. Let me just break it down for you. Basically, there's a pile of money within a coin project, and that pile of money really determines if it's big or small. And this pile of money is used to buy and sell a coin. That's what you call liquidity. And so right now, as of this date, this is what we call our liquidity matrix. This is what we consider low liquidity, medium liquidity, and high liquidity, a.k.a. low liquidity is very high risk, medium liquidity is medium, and high liquidity is lower risk because if you have a lot of money in it, there's a lot lower risk. And so we update the liquidity matrix maybe like once a month to kind of gauge it because the entire market changes. And so risk parameters change based off the market.
