Liquidity Flight

Definition ∞ Liquidity flight describes a rapid and significant withdrawal of capital from a particular asset, market, or financial system, often triggered by a loss of confidence or perceived risk. This swift exit reduces the availability of buyers and sellers, leading to decreased market depth and increased price volatility. It can severely impact asset valuations and market functionality. Such events typically occur during periods of economic uncertainty or systemic stress.
Context ∞ Liquidity flight is a critical concern in volatile digital asset markets, frequently discussed in news during periods of market downturns or regulatory uncertainty. The rapid movement of capital out of specific tokens or decentralized finance protocols can lead to cascading liquidations and significant price drops. Monitoring on-chain metrics and stablecoin movements provides insight into potential liquidity shifts, which are vital for understanding market stability.