A liquidity glossary written to be usable

How to use this glossary

Each entry says what the thing is, what it does to a position, and the mistake most often made about it. Where a term is used loosely across the ecosystem, the entry says so rather than pretending there is one settled meaning. Terms are ordered by how they build on each other rather than alphabetically, so reading straight through works as an introduction to the subject.

Nothing here is advice. Several of these terms describe exposures that can cost a provider real value, and supplying liquidity can leave a position worth less than holding the two assets outright. The definitions describe mechanics; what to do about them is not something this desk can decide for anyone.

Thirty terms from the liquidity side

Automated market maker

A program that quotes a price from the balances it holds rather than from a book of orders. It will trade with anyone at whatever price its formula implies for the size brought to it, which means there is no counterparty deciding whether your trade is reasonable. Every property people attribute to an AMM market, including its depth and its behaviour under size, is a consequence of the formula and the balances.

Constant product invariant

The rule used by classic pools: the product of the two reserve balances may not fall when a swap occurs, once the fee is set aside. Because the curve approaches but never touches either axis, no finite trade can empty the pool; the price simply becomes arbitrarily bad. The invariant rises when liquidity is added, falls when it is removed, and drifts up slowly where fees stay in the reserves.

Reserves

The two token balances held by a pool account. They are the ground truth of every liquidity reading, because the quoted price is their ratio and the pool size is a function of their product. Reserves should always be read raw and normalised for token decimals afterwards, since a denominated figure moves whenever the quote asset moves even though no liquidity has changed hands.

Mid price

The price implied by the reserve ratio, which is the price at which a trade of zero size would execute. Nobody trades zero size, so the mid is a reference point rather than a transactable number. Treating it as the price you will receive is the most common small error in this subject, and it grows expensive quickly as trade size increases.

Depth

The amount that can be traded before the price has moved a stated distance. Depth is the only liquidity measurement that answers a question a trader actually has, and it is meaningless unless the distance, the side and the venue are all stated. Two pools holding identical capital can differ by an order of magnitude in depth if that capital is arranged differently.

Depth at one per cent

The size tradable in one direction before the pool price has moved one per cent away from where it started. It is the most commonly quoted rung of a depth ladder and is quoted per side, because the buy and sell figures frequently differ. A pair that is cheap to buy and expensive to sell is a real observation that a single liquidity figure conceals.

Price impact

The movement your own trade causes along the pool curve. It is fully deterministic: given the reserves and your size, the fill can be computed exactly before anything is sent. Price impact grows faster than trade size, which is why splitting large orders across venues is routine practice and why a large order against a thin pool is frequently the whole reason the price ended up where it did.

Slippage

The difference between the price expected and the price received. It combines two distinct things: price impact, which is calculable in advance, and drift, which is other traders acting between the moment a quote is computed and the moment the transaction lands. Separating the two makes post-trade analysis honest, because only the second is a question about queueing rather than arithmetic.

Slippage tolerance

The maximum deviation from the expected price a trader will accept before the transaction fails rather than filling. It protects against drift, not against price impact, which no tolerance can remove. Setting it wide enough to survive ordinary market movement while narrow enough to reject an unrecognisable market is a judgement rather than a setting with a correct value.

LP token

A token representing a pro-rata claim on everything a pool holds. It is not a receipt for the assets deposited and confers no right to receive those specific assets back. Burning it returns a share of the current balances, which reflects all trading since entry and, on venues that retain fees in reserves, accumulated fees as well.

Pool share

The fraction of a pool a position represents, computed as the holder LP balance divided by total LP supply. It falls whenever anyone else deposits, so a position that began as a tenth of a pool can be a fortieth weeks later without its owner acting at all. Any assessment that assumes the entry share is measuring the wrong claim.

Total value locked

The converted value of everything a pool holds. It bounds the market usefully and describes it poorly, because it says nothing about how the capital is arranged and moves whenever the denominating asset moves. On any venue with ranges, two pools reporting the same figure can offer completely different execution.

Impermanent loss

The gap between what a liquidity position is worth and what the same two assets would have been worth if simply held. It appears whenever the price ratio changes, grows with the size of that change, and is symmetric between a doubling and a halving. It is not a fee and nobody charges it; it is the arithmetic consequence of holding a position that sells strength and buys weakness.

Divergence loss

The more accurate name for impermanent loss, used because nothing forces a diverged price ratio to return. Where an asset has genuinely repriced, the gap is permanent in every sense a provider cares about, and it is realised the moment the position is closed. The older term has led a great many readers to treat a structural exposure as a temporary accounting curiosity.

Concentrated liquidity

A design in which providers supply capital to a chosen price interval rather than the entire curve. Inside the interval the position behaves like a much larger classic position, so the same capital supports far more depth where it is used. Outside it, the position holds one asset and earns nothing, which makes depth on these venues sharply dependent on where the price currently sits.

Price range

The interval a concentrated position quotes across. Narrow ranges accrue fees faster while the price stays inside and stop entirely when it leaves; wide ranges earn less per unit of capital and keep quoting. Choosing a range is taking an active position on where the price will stay, whether or not the provider describes it that way.

Tick

A discrete price boundary used by concentrated venues to define where a position starts and stops quoting. Because ranges must begin and end on ticks, and because many providers choose similar round boundaries, positions tend to cluster at the same prices. That clustering is why a depth ladder can fall off a cliff at one distance rather than tapering smoothly.

Liquidity bin

A discrete price bucket used by some dynamic liquidity designs, holding a fixed amount of liquidity that is consumed as the price crosses it. Reading a bin-based pool means walking the distribution of occupied bins rather than applying a single formula, and depth at a given distance depends entirely on how crowded the bins between here and there happen to be.

Out of range

The state of a concentrated position when the price has left its interval. The position has been fully converted into one of the two assets, has stopped quoting and earns nothing until the price returns. Nothing was withdrawn and no instruction was submitted, which is why an out-of-range event and a withdrawal look similar in a depth series and completely different in the instruction record.

Swap fee

A fraction of each trade set aside for liquidity providers, expressed as a protocol parameter rather than as a return. Depending on the venue it either stays inside the reserves, raising every claim, or accrues separately and must be claimed. The fee rate can be stated precisely; what any provider earned from it cannot, because that depends on flow through their specific position.

Fee accrual

The process by which trading fees become part of a provider claim. Where fees remain in the reserves, the reserve product creeps upward during busy periods with no deposit involved, and mistaking that drift for liquidity provision is a common misreading. Accrual depends entirely on flow routing through the position, so capital in a range the price never visits accrues nothing.

Liquidity lock

An arrangement placing LP tokens somewhere the original owner cannot reach for a stated period. It constrains one position only. It says nothing about other positions in the same pool, nothing about trading, nothing about the token itself, and it expires. Reading a lock as a property of a market rather than of a single position is a specific and expensive error.

Liquidity migration

Depth moving from one venue to another, usually visible as a new pool for the same pair appearing and beginning to receive flow while the old one goes quiet. Nothing leaves the pair. An abandoned pool keeps quoting from its remaining reserves, and that quote can drift far from where the pair actually trades because nobody is arbitraging a venue nothing routes to.

Bonding curve

A launch mechanism where price is a deterministic function of supply rather than of two reserves. Depth is one-sided in a way a two-asset pool is not, and the shape of its growth is fixed by curve parameters rather than by anyone deciding to supply capital. Pool intuitions carried across without adjustment overstate what an early curve can absorb.

Graduation

The point at which a token on a launch curve moves to an automated market maker pool. Depth changes shape at that moment even when the price does not move, so a series that splices the curve and the pool together shows a step change that never happened in the market. Post-migration pools are where most sustained trading subsequently occurs.

Routing

The process by which a trade is directed to one or more pools. It matters to a liquidity reading because depth on a venue nothing routes to cannot fill anything, and because a split order experiences a combination of ladders rather than the single one that was measured. Measuring one pool and reasoning about the whole pair is a category error.

Aggregator

A service that searches across venues and splits an order to obtain a better overall fill than any single pool would give. Its existence is why depth should be summed across venues only when the router can actually reach them, and why realised execution is sometimes better than a single-pool ladder predicts.

Arbitrage

Trading that closes the difference between a pool quote and the wider market price. It is the mechanism that keeps pools aligned, and it is also where the gap against holding goes: every correction buys from the pool cheaply or sells to it expensively relative to the eventual price. Providers fund that alignment and are compensated, if at all, in fees.

Pool rebalancing

The automatic change in a pool composition as people trade against it. Because the pool must sell whichever asset is rising and buy whichever is falling, a provider claim drifts towards the weaker asset over any period where the ratio moves. This is not a malfunction; it is what supplying a two-sided quote at a formula price means.

Venue set

The list of pools that count as the market for a given pair in a particular reading. Fixing it before collecting anything is what makes a depth series comparable over time, because adding a pool halfway through shows a jump in liquidity that is entirely a collection event rather than a market one.

Where these terms are used

The mechanics behind the first half of this list are worked through in how a pool holds a price and reading depth properly. The position vocabulary is applied in adding and removing liquidity and impermanent loss in plain terms.

The movement vocabulary, covering migration, locks and range exits, is used throughout when liquidity leaves, and the measurement terms appear in tracking depth changes over time. The head entry, Solana liquidity flow analysis, uses most of the list at least once.