Liquidity, sometimes people do not realize that this is actually what defines the value of any market, even in crypto we see people give more references to things like "market capitalization" and "supply caps" which is just crazy.
First, market capitalization in no way represents the "actual value" of any market, the practice of using this as a "metric" for assessing a network or project value should be totally eradicated, but since crypto tends to mirror majority of what we have in traditional markets, we keep seeing these flawed economic equations get applied in crypto.
Secondly, in relation to supply caps, when it comes to this, I would say that what makes limited supply cryptocurrencies valuable isn't just the fact that they are limited, but mostly what problems they solve that makes it highly meritable to have a limited supply.
With bitcoin, we understand that Bitcoin is trying to be a store of value, picture a digital gold, the goal here is to leverage its ultimate security and limited supply to attain wide market stability, this, is something that we are still far from achieving because reality is that Bitcoin will continue to be volatile for a long time.
That said, when people come up to make noise on "supply caps" I can't help but laugh off the ignorance because this shit turns into a "limitation" very quickly, just as a huge initial supply causes strain on market growth.
The first causes high volatility if expansion was attempted and the second just makes it incredibly difficult to expand, so you see, with crypto, it is important to get "distribution" right or that project is fucked.
Liquidity as a value determinant
Amongst many other things that determines the value of a given network or project, liquidity is one most important piece of the whole pile.
There's a huge advancement taking place with the "restructuring of money and assets markets" as crypto comes into the picture. Not only is the creation of value now incredibly easy for everyone, the maintenance of these structures is also being fully designed to honor its creation algorithms.
What do I mean?
Ever heard of "Concentrated Liquidity"?
You see, eventually, crypto has to find ways to move away from centralized exchange and trading platforms, it is a very crucial step that will largely benefit this ecosystem.
As such, some things that will be lost in the process would be "order book markets". Of course, they may not entirely be lost as many blockchains or projects might still build them but people will mostly prefer instant swaps to order book markets.
Concentrated Liquidity enables us have both without having them exist separately
How?
Concentrated Liquidity is simply a feature ( which was reportedly a defining idea of Uniswap v3) that allows liquidity providers to set a "custom" price range for the liquidity they provide.
That is, as opposed to regularly liquidity provision practices where all liquidity assets are paired together at "uniform" price and left for the smart contracts to manage the price shifts for each trade based on the available liquidity, concentrated liquidity allows the providers to choose what price they agree to for their assets to be traded.
This gives more control to participants over their assets in a liquidity pool which in some way, merges the structures of the order book markets with regular DeFi swaps.
Vast tokenization and liquidity scalability will solve market insolvency
As traditional banking structures begin to make moves into the crypto markets, it is expected that there would be an influx of value as institutions like JPMorgan bring "centralized" tokenization of traditional assets and projects like Ripple stand to attract major U.S. banks.
While these names aren't necessarily the market movers, each will play a crucial role. The thing about tokenization is that it is highly flexible and allows vast scalability.
We are dealing with a technology whose public markets will be "highly" interoperable, so in essence, reputable markets will be able to tap into a wide range of market value as the industry develops into an ecosystem of multi-level interactivity that allows cross-platforms and blockchains to communicate with each other, sending and receiving value.
The ultimate idea is the instant ability to tokenize events on-chain and receive near-immediate funding. Of course, cross-platform liquidity is already a thing, what's more to come would enable a wide range of lending and borrowing to happen on-chain with the aid of "tokenization" and "smart contracts" ensuring the fulfillment of these financial transactions.
Think about instant Security Token Offerings (STOs) birthed on-chain via tokenization allowing for fractional ownership of value flows within an ecosystem. The potentials are just enormous as this would allow for a wide market stability to be achieved.
On-chain bail outs backed by value flows with the aid of tokenization and smart contracts security, this is only a piece of what is coming.