Sustainable liquidity refers to the consistent availability of sufficient assets in a market to facilitate trading without undue price volatility. In the digital asset space, this implies a healthy balance between buying and selling interest, supported by deep order books and active market makers. It indicates that the market can absorb large trades over extended periods without experiencing significant price slippage. Achieving sustainable liquidity is crucial for the long-term viability and attractiveness of any digital asset or decentralized finance protocol.
Context
News often reports on efforts by decentralized exchanges and new digital asset projects to build and maintain sustainable liquidity. Incentives for liquidity providers are a common topic, as are discussions around market depth and trading volumes. The presence of sustainable liquidity is a key indicator of market maturity and investor confidence.
The Layer 2's targeted incentive program strategically directs capital toward high-efficiency looping strategies, prioritizing sustainable TVL over simple volume.
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