Liquidity risk management involves strategies and processes used to ensure an entity can meet its financial obligations as they become due. This practice includes monitoring cash flows, maintaining sufficient liquid assets, and planning for unexpected funding needs or market disruptions. Effective liquidity risk management prevents solvency issues and maintains operational continuity. It is a critical component of financial stability for any institution, including those dealing with digital assets.
Context
In the context of crypto news, liquidity risk management is a particularly acute concern for stablecoin issuers, decentralized finance (DeFi) protocols, and crypto exchanges. Reports often focus on the transparency and quality of stablecoin reserves, or the potential for sudden withdrawals from DeFi platforms. Robust liquidity risk management frameworks are increasingly demanded by regulators to protect users and maintain confidence in digital asset markets.
Stablecoin issuers face renewed scrutiny as the EBA defends prudential standards, blocking amendments that would have introduced material reserve liquidity risk.
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