It all comes down to liquidity — Liquidity Risk in Digital Asset Markets

Healthy levels of liquidity play a critical role in maintaining healthy market conditions — nowhere is this truer than in DeFi markets. In traditional financial markets, liquidity is typically provided by institutional investors, such as banks and hedge funds. However, for DeFi the responsibility falls on a diverse set of market participants, ranging from retail investors, institutional allocators, and specialised liquidity providers. Unlike traditional markets, there is no centralised authority to regulate trading hours or halt trading in the case of a crisis. This poses a significant challenge to market participants who need to manage liquidity risks 24/7.

Multi-Stack Protocols are here

During a bear market, protocols have choices to make. The smart move would be to vertically integrate other segments of the ecosystem into existing frameworks, thereby expanding market share and building an ecosystem grounded in the original protocol. We'll examine how different protocols are adopting this strategy, such as Curve introducing their crvUSD Stablecoin and MakerDAO launching the Spark Protocol to enhance the utility of its DAI stablecoin.

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