Secondary markets and liquidity

Every Tuesday morning, the Annecy market fills the streets of the old town. Stalls of reblochon, tomme and saucisson line the canals, and buyers come in numbers because they know they will find sellers there, and the sellers come because they know they will find buyers. If tomorrow the finest stalls in the world were set up on the deserted square of an isolated hamlet, nobody would come. A market is born from encounter, habit, trust and numbers, far more than from the beauty of the stalls.

This image says everything about liquidity. Liquidity is the promise most often put forward in favour of RWA, and the one most often disappointed. A trading platform exists as soon as it is launched. A market, for its part, requires buyers and sellers in sufficient numbers. Understanding this difference protects the investor from reckless promises, and the entrepreneur from the design errors that cost his predecessors so dearly.

What liquidity means

An asset is liquid when it can be sold quickly, in significant quantity, without driving down its price. Economists break this quality down into several dimensions. The tightness of the spread between the best price offered by a buyer and the best price asked by a seller. The depth of the market, that is, the volume that can be sold without moving prices. Resilience, or the speed at which prices recover after a large transaction. Immediacy, finally, the time needed to find a counterparty.