Network illiquidity refers to a state within a blockchain or decentralized network where there is an insufficient amount of readily tradable assets to facilitate smooth and efficient transactions. This can manifest as wide bid-ask spreads, difficulty in executing large orders without significant price impact, or a general lack of market depth. Illiquidity can hinder user activity, increase transaction costs, and deter new participants. It affects market functionality.
Context
Network illiquidity is a critical concern for emerging blockchain networks and decentralized finance protocols, as it directly impacts usability and investor confidence. Projects often implement various incentive programs, such as liquidity mining, to address this issue and attract more capital to their ecosystems. News reports sometimes highlight periods of network illiquidity, particularly during market downturns or for less established digital assets.
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