Low liquidity describes a market condition where there are insufficient buyers and sellers to facilitate easy and rapid transactions. Assets with low liquidity are difficult to trade in large volumes without significantly impacting their price. This can lead to wider bid-ask spreads and increased price volatility.
Context
In the cryptocurrency market, low liquidity is often observed in smaller altcoins or during periods of market contraction, making it challenging to execute large trades without substantial price slippage. News reports frequently discuss the impact of liquidity on trading strategies and the stability of digital asset prices. Efforts to enhance liquidity through market-making mechanisms and decentralized exchanges are ongoing areas of development.
An integer division flaw in a newly deployed vault allowed attackers to manipulate exchange rates, enabling undercollateralized borrowing and significant asset drain.
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