What is a liquidity protocol?

Liquidity measures how easy it is to convert an asset from one form to another. In economics, the term mostly revolves around the ability of an asset to be converted to cash or fiat money and from cash back to the same asset. Hence, cash in the hands of the public and demand deposits are narrow money, with the former being "high-power money". In crypto-economics, liquidity pools help users of DeFi protocols convert from one token to another and it is the most crucial part of decentralized exchanges. Most DEX protocols have liquidity pools.