Definition ∞ Chain contagion describes the rapid and widespread negative impact across interconnected blockchain networks or digital asset markets following a localized failure or event. This phenomenon can propagate financial instability or operational disruptions from one system to others. It is often triggered by significant liquidity issues, security breaches, or protocol vulnerabilities within a prominent project.
Context ∞ The concept of chain contagion frequently appears in analyses of market downturns or systemic risks within the cryptocurrency ecosystem. Understanding its mechanisms is essential for assessing the stability of decentralized finance and the broader digital asset market, particularly as inter-chain operations grow.
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