Opinion by: Arthur Azizov, founder and investor in B2 Ventures
Despite its decentralized nature and large promises, cryptocurrency is still a currency. Like all currencies, it cannot avoid the realities of today’s market dynamics.
As the crypto market develops, it begins to reflect the life cycle of traditional financial devices. The illusion of liquidity is one of the most pressure and, surprisingly, low addressed issues that stems from market development.
Global cryptocurrency market was Important It is expected to exceed $ 2.49 trillion in 2024 and more than $ 5.73 trillion by 2033, growing at a mixed annual growth rate of 9.7% in the next decade.
Below this development, however, a fragility lies. Like FX and Bond Markets, Crypto is now challenging the Phantom Liquidity: Order Books that look strong during the storm during the storm.
Classes confusion
More than $ 7.5 trillion In daily trading volume, the foreign exchange market is historically considered the most fluid. Nevertheless, even this market now shows signs of fragility.
Some financial institutions and traders are afraid of market -depth confusion, and are becoming regularly slippery, more tangible on the most liquid FX pairs such as EUR/USD. A single bank or market manufacturer is not ready to withstand the risk of keeping unstable property during a sell–2008 after-2008 after the warehouse risk.
In 2018, Morgan Stanley noted A deep change where liquidity risk resides. Following the financial crisis, capital requirements excluded banks from the provision of liquidity. The risks did not disappear. He only went to asset managers, ETFs and algorithm systems. During the day there was a boom of passive funds and exchange-traded vehicles.
In 2007, index-style funds Conducted Only 4%of MSCI World Free Float. By 2018, the figure was up to 12% three times, with concentrations up to 25% of specific names. This condition shows a structural mismatch – liquid wrappers that have immoral assets.
ETFs and passive funds promised easy entry and exit, but the property organized by them, especially corporate bonds, could not always meet the expectations when the markets became unstable. During heavy price ups and downs, ETFs are often sold more intensive than the underlying assets. Market manufacturers demanded widespread spread or refused to enter, reluctant to keep property through turmoil.
The incident, which was first seen in traditional finance, is now playing with familiarity in Crypto. Liquidity can only look strong on paper. Onchain activity, token volumes and order books on centralized exchanges all indicate a healthy market. But when the spirit is sour, the depth disappears.
Crypto liquidity confusion is finally coming to light
The illusion of liquidity in Crypto is not a novel event. Crypto during 2022 turnMajor tokens also experienced sufficient slippery and widening spreads on top exchanges.
Recent accident of Om tokens of Mantra Is Another reminder – when the feeling changes, the dialect disappears, and the value support evaporates. Already looks like a deep market in calm conditions, immediately may fall under pressure.
This occurs mainly because the infrastructure of the crypto is highly fragmented. Unlike equity or FX markets, Crypto liquidity is scattered in many exchanges, each with its order book and market makers.
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This fragmentation is even more tangible for Tier 2 tokens – which are outside the top 20 by the market cap. These assets are listed in exchanges without integrated pricing or liquidity support, which rely on market makers with different mandates. So, liquidity exists but without meaningful depth or harmony.
This problem deteriorates with opportunistic actors, market manufacturers and token projects, who create confusion of activity without contribution to real liquidity. Spufing, wash trading and inflated volumes are GeneralEspecially on small exchange.
Some projects stimulate the depth of an artificial market to attract even the listing or seem more valid. When volatility becomes hit, however, these players immediately pull back, causing retail traders to decline to toe. Liquidity is not just delicate, it is only fake.
Solution of liquidity problem
Crypto requires integration at the base protocol level to deal with liquidity fragmentation. This means embeding crosschain bridging and routing function directly into the core infrastructure of the blockchain.
This approach, now actively embraced by a select layer -1 protocol, considers the asset movement not later but as a fundamental design principle. This mechanism helps to unite the liquidity pool, reduce market fragmentation and ensure smooth capital flow in the market.
In addition, the underlying infrastructure has already traveled a long way. The speed of execution that once took 200 milliseconds is now down to 10 or 20. P2P messaging between Amazon and Google’s cloud ecosystems, clusters is able to fully process trades into the network.
This performance layer is no longer a bottleneck – it is a launchpad. It empowers market manufacturers and trading bots to operate basically, especially since 70% to 90% Stabeloin transaction versions, which is a major section of the Crypto market, now now Comes From automatic trading.
Better plumbing alone, however, is not enough. These results should be combined with smart interoperability on protocol levels and integrated liquidity routing. Otherwise, we will continue the construction of high-speed systems on fragmented land. Nevertheless, the foundation is already strong enough to support something big.
Opinion by: Arthur Azizov, founder and investor in B2 Ventures.
This article is for general information purposes and is not intention and should not be taken as legal or investment advice. The ideas, ideas and opinions expressed here are alone of the author and not necessarily reflected or represented the ideas and ideas of the components.
