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Liquidity refers to the ease with which assets or securities can be bought or sold in a market without causing significant price changes. In the context of blockchain and decentralized finance (DeFi), liquidity is crucial for efficient trading. Liquidity allows participants to quickly convert their assets into cash or other tokens without impacting the market price. Liquidity pools, common in DeFi, enable users to trade assets by providing liquidity in exchange for incentives, facilitating smoother transactions within decentralized exchanges and protocols.