Definition ∞ Market contagion describes the rapid spread of financial distress or negative sentiment from one asset, market, or institution to others. In the crypto space, this means a downturn in one digital asset or project can trigger a cascade of declines across related or even unrelated assets. It highlights the interconnectedness of the digital asset ecosystem.
Context ∞ The discussion around market contagion in crypto frequently addresses the systemic risks associated with highly correlated assets and the failure of prominent platforms. A critical future development involves regulatory efforts to monitor and mitigate these risks, alongside improved risk management practices within decentralized finance protocols to prevent widespread financial instability.
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