Liquidity Buffer

Definition ∞ A liquidity buffer is a reserve of highly liquid assets held by an entity to meet short-term cash flow needs or unexpected financial demands. This buffer provides a safety margin against market shocks or operational disruptions. It ensures the entity can fulfill its obligations without resorting to distressed asset sales. Maintaining an adequate buffer is a key risk management practice.
Context ∞ For stablecoin issuers and decentralized finance platforms, maintaining an adequate liquidity buffer is paramount for preserving asset peg stability and user confidence. Regulatory proposals frequently address minimum liquidity buffer requirements to enhance the resilience of digital asset ecosystems. The composition of these buffers is often scrutinized.