Liquidity providers will help Mosendo ensure that our underlying stablecoin, DAI, is available and easy to trade with local fiat money.

Sounds cool. But what is liquidity?

<aside> 📕 Liquidity is the measure of your ability to buy or sell something for what its worth, right when you want to.

Other ways of thinking about liquidity include:

→ If a market has high liquidity, you can sell or buy a lot of the assets without changing the price.

💛 Example Even if you buy a million dollars of gold, the price of gold will not change much. The market for gold is highly liquid.

→ If a market has low liquidity, you may have to wait a long time to sell your asset at an ideal price.

🏍️ Example If you try to sell a used motorcycle quickly in August, you may have to accept a much lower price. The market for secondhand motorcycles is highly illiquid.

</aside>

OK, we get what liquidity is. How does someone "provide" it?

Let's go back to the example above about the motorcycle.

Q If someone were a "liquidity provider" for the secondhand motorcycle market, how would they do that?

A Let's say the average market price for a particular motorcycle is $5,000, but today, I can only find a buyer for $3,000. How would a liquidity provider help me? They would agree to buy my motorcycle today for $5,000, and hold it in a warehouse until someone else came along to buy it from them for the fair price of $5,000.

Quite nice of that liquidity provider! They made sure that the seller could sell their motorcycle just when they wanted to, and they also made sure a motorcycle was available for purchase when the buyer wanted it.

Why is this important for Mosendo?

Mosendo needs to be sure that its humans can smoothly swap between DAI and the local fiat.

😨 What we don't want to have happen:

An Argentine Mosendo user needs to change from DAI to the local Argentine Peso to purchase a secondhand car. This is a large amount of DAI, so when he swaps the DAI for Pesos, he ends up losing 5% of his total value because not enough other people are buying DAI. This is bad!

😄 What we do want to have happen

The Mosendo user trades his DAI for Pesos and receives a rate similar to the published USD/ARS rates. He receives his Argentine pesos without any loss and buys the car. This is good!