Liquidity Risk
The risk that a position cannot be traded at a reasonable price because there are not enough willing buyers or sellers at that moment.
Liquidity is measured by how much can be traded without moving the price: order-book depth within a given distance of the mid price, the bid-ask spread, and the realized slippage on a specified size. In digital assets, liquidity is fragmented across many centralized venues, automated market maker pools, and separate chains, and much of it is provided by firms that can withdraw quotes instantly, so depth is at its thinnest exactly when it is most needed. Reported trading volume is a weak proxy, since volume can be inflated by wash trading on venues with no fee incentive against it, and since turnover says nothing about depth available now. Tokens with most of their supply locked, vesting, or held by a treasury can show a large notional size while having very little tradable float.
En pratique
The same order that moves the price barely at all in calm conditions can move it substantially during a volatile session, because market makers widen spreads and pull depth as volatility rises.
Le malentendu courant
That high trading volume means high liquidity, when volume measures turnover over a period while liquidity is depth available right now, and thin books can generate large volume with large price impact.