Illiquidity Premium Reduction describes the decrease in the additional return investors demand for holding assets that cannot be easily converted to cash without significant price impact. This reduction typically occurs as markets mature, liquidity improves, and transaction costs decline. It signifies a greater ease of trading and lower risk associated with exiting positions.
Context
The illiquidity premium reduction is a significant trend observed in maturing digital asset markets, particularly as institutional participation grows and trading infrastructure develops. News often highlights increased market depth and tighter bid-ask spreads as evidence of this phenomenon. A shrinking illiquidity premium indicates a market becoming more efficient and appealing to a broader investor base.
Tokenizing private equity funds on-chain fractionalizes an illiquid asset class, structurally lowering the minimum investment threshold and enhancing capital efficiency for the wealth management division.
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