Definition ∞ A low liquidity attack occurs when an attacker exploits a market with insufficient trading volume to manipulate the price of an asset. By executing relatively small trades, the attacker can cause disproportionately large price swings. This vulnerability is common in nascent or thinly traded digital asset markets. Such an attack can lead to significant financial losses for other market participants.
Context ∞ Low liquidity attacks pose a substantial risk in the decentralized finance (DeFi) ecosystem, where many tokens have limited trading depth. The ongoing discussion centers on developing robust market designs and encouraging deeper liquidity pools to mitigate these vulnerabilities. Future developments involve protocol upgrades that incorporate dynamic fee structures and enhanced oracle security to counter such exploitations.
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