Definition ∞ On-chain supply friction refers to factors within a blockchain network that impede the free movement or availability of a digital asset, thereby reducing its liquid supply. This can include assets locked in staking protocols, decentralized finance applications, or smart contracts for various purposes. Such friction can influence market price by constraining circulating supply.
Context ∞ News often discusses on-chain supply friction in relation to protocol upgrades or the growth of decentralized finance ecosystems. Projects frequently design mechanisms to create this friction, aiming to incentivize long-term holding and reduce selling pressure. Understanding these dynamics is essential for assessing the true market capitalization and potential price action of a digital asset.
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