Liquidity Collapse

Definition ∞ A liquidity collapse describes a sudden and severe reduction in the availability of assets for trading within a market, making it difficult to execute transactions without significantly affecting prices. In cryptocurrency markets, this can occur due to rapid sell-offs, withdrawal freezes, or the failure of major market makers. Such an event can lead to extreme price volatility and market instability.
Context ∞ Liquidity collapse is a critical term in crypto news, often associated with market crises, de-pegging events of stablecoins, or the failure of decentralized finance protocols. Its occurrence can have far-reaching effects across the digital asset ecosystem, impacting investor confidence and market stability.