Deep liquidity issue is crypto's silent structural risk
Cryptocurrency, despite its decentralized nature, functions as a currency and is subject to market dynamics. The global crypto market, valued at $2.49 trillion in 2024, is projected to grow to $5.73 trillion by 2033, with a compound annual growth rate of 9.7%. However, the market faces fragility, particularly regarding the illusion of liquidity, where order books appear robust but thin during volatility. Historical shifts in liquidity risks have moved from banks to asset managers and ETFs, leading to structural mismatches between liquid wrappers and illiquid assets. This phenomenon has been evident in crypto, especially during downturns like in 2022, where major tokens experienced significant slippage. Fragmentation across exchanges exacerbates liquidity issues, particularly for Tier 2 tokens. Solutions involve integrating cross-chain bridging and routing functions into blockchain infrastructure to unify liquidity pools and enhance capital flow. Improved execution speeds and automated trading are also crucial for addressing these challenges.
