Definition ∞ A Liquidity Squeeze describes a market condition where there is a sudden and severe shortage of available liquid assets, making it difficult for participants to sell assets without significantly impacting prices. In the crypto market, this can occur when a large volume of assets is locked, withdrawn, or when market makers reduce their activity. It often leads to sharp price declines and increased volatility.
Context ∞ Liquidity Squeezes are a recurring risk in the cryptocurrency markets, often exacerbated by rapid market shifts or protocol vulnerabilities. A key observation involves how such events can quickly trigger cascading liquidations across decentralized finance platforms. Future discussions will likely center on developing more robust risk management protocols and improving market transparency to better predict and mitigate the effects of liquidity shortages.
Blockchain Knowledge
Cryptocurrency Foundation
Cryptospace Newsfeed
