Definition ∞ An ETH liquidity crisis is a severe shortage of Ether (ETH) available for trading or lending within decentralized finance (DeFi) protocols or centralized exchanges. This condition can lead to extreme price volatility, high borrowing costs, and difficulties executing large trades. It typically arises from significant market events, large-scale staking, or concentrated withdrawals. Such a crisis can disrupt the stability of the broader crypto market.
Context ∞ News often speculates on potential ETH liquidity crises, particularly during periods of high network congestion or following major protocol upgrades like the Ethereum Merge. The discussion centers on the balance between staking rewards, which lock up ETH, and the need for sufficient liquid supply for DeFi activities. Market participants closely monitor on-chain metrics for signs of liquidity stress.
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