Liquidity fragmentation describes the dispersion of trading activity and available capital across multiple exchanges, protocols, or trading venues for a specific digital asset. This scattering can lead to less efficient price discovery and higher transaction costs. It impacts the ease with which large orders can be executed without significant price slippage.
Context
The situation surrounding liquidity fragmentation in the crypto market is a significant challenge, often resulting in suboptimal trading conditions for participants. A key debate involves solutions such as liquidity aggregators and cross-chain protocols designed to unify these disparate pools. Future developments focus on creating more interconnected and efficient trading environments for digital assets.
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