Definition ∞ A Liquidity Freeze describes a market condition where a digital asset cannot be readily bought or sold without substantial price impact or delay. This situation arises when there is a sudden lack of willing buyers or sellers. It effectively renders assets illiquid, making conversion to other assets or fiat currency difficult. Such an event can severely restrict market participants’ ability to transact.
Context ∞ Liquidity freezes are a significant concern often highlighted in crypto news, particularly during periods of extreme market volatility or protocol exploits. They impact investor confidence and the operational continuity of decentralized exchanges. Discussions center on mechanisms to prevent such events, such as improved automated market maker designs or circuit breakers. This risk underscores the importance of robust market design in digital asset ecosystems.
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