Definition ∞ On-chain liquidity flow represents the movement of digital assets within decentralized finance protocols and smart contracts on a blockchain. This metric measures the availability and ease with which assets can be exchanged or utilized directly on the ledger. It indicates the depth and efficiency of decentralized markets.
Context ∞ Analysts frequently monitor on-chain liquidity flow to assess the health and activity of various DeFi ecosystems. High liquidity typically suggests robust trading conditions and greater capital efficiency within decentralized applications. News often reports on shifts in this flow, which can signal changes in market sentiment, protocol adoption, or underlying economic conditions.
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