Opinion: Arthur Azizov, founder and investor at B2 Ventures
Despite the decentralized nature and huge promises, cryptocurrency is still a currency. Like all currencies, he cannot escape from the reality of today’s market dynamics.
As the cryptocurrency market develops, it begins to reflect the life cycle of customary financial tools. The illusion of liquidity is one of the most smoking and, surprising, less solved problems resulting from market evolution.
The global cryptocurrency market was valuable At $ 2.49, USD in 2024 is expected that by 2033 it will be more than twice to $ 5.73 trillion, growing with a intricate annual growth rate by 9.7% in the next decade.
However, there is fragility under this boost. Like FX and Bond markets, Crypto is now a challenge in the work of liquidity: Order books that look solid in peaceful periods, quickly thinning during a storm.
Illusion of liquidity
With more than USD 7.5 trillion In the daily trade volume, the currency market was historically seen as the most liquid. However, even this market is now showing signs of fragility.
Some financial institutions and traders are afraid of the illusion of market depth, and regular slips of even the most liquid FX couples, such as EUR/USD, become more real. No bank or market manufacturer is ready to face the risk of maintaining unstable assets during sales-such as storage risk after 2008.
Morgan Stanley in 2018 excellent A deep change in the place where there is a risk of liquidity. After the financial crisis, capital requirements were led by banks from the liquidity provision. The risk did not disappear. They just went to assets, ETF and algorithmic systems. During the day there was a boom of passive funds and stock market vehicles.
In 2007, index -style funds held Only 4% Float Floor World World. By 2018, this number got up to 12%, at concentrations up to 25% under specific names. This situation shows structural mismatch – liquid packaging containing non -cry.
ETF and passive funds promised an straightforward entry and exit, but their assets, in particular corporate bonds, can not always meet expectations when the markets have become unstable. During drastic fluctuations in ETF prices, they are often sold more intensively than base assets. The market creators demanded wider spreads or refused to enter, reluctantly holding the assets through the confusion.
This phenomenon, for the first time observed in customary finances, is now playing with knowledge of crypto. Liquidity may seem solid only on paper. Onchain, tokens and orders for centralized exchanges indicate a robust market. But when acidic moods, the depth disappears.
The illusion of cryptocurial fluidity finally comes to lithe
The illusion of liquidity in crypto is not an creative phenomenon. During cryptography 2022 crisisThe main tokens experienced significant slip and expanding spreads, even on the highest exchanges.
The recent catastrophe of the OM Mantra token is another reminder – when the moods change, the offers disappear and evaporate price support. What at first looks on a deep market in still conditions can immediately fall under pressure.
This is mainly because the crypto infrastructure remains very broken. Unlike FX stock markets or markets, cryptocurrency fluidity is dispersed through many stock exchanges, each with their own order book and market producers.
Last: Asia has cryptographic liquidity, but the USA Treasurys will unlock institutional funds
This fragmentation is even more real for level 2 tokens – those outside the first 20 according to market capitalization. These assets are listed on stock exchanges without unified prices or liquidity support, based on market manufacturers with various tickets. So smoothness exists, but without significant depth or consistency.
The problem is deteriorating with opportunistic entities, market producers and tokens projects who create an illusion of activities without causing real fluidity. Treatment, laundry and volume are widespread, especially on petite stock exchanges.
Some projects even stimulate the artificial depth of the market to attract offers or seem more justified. However, when the volatility strikes, these players immediately go back, leaving retail traders to the fingers with the fall of prices. The liquidity is not simply delicate, it is simply false.
Solving the problem of liquidity
Integration at the level of the basic protocol is required to deal with the fragmentation of liquidity in crypto. This means that embedding the branching and routing functions of transitions directly into the basic blockchain infrastructure.
This approach, currently actively accepted by the protocols of selected layer 1, treats the asset movement not as a reflection, but as the basic principle of design. This mechanism helps to unite liquidity pools, reduce market fragmentation and ensure a fluid flow of capital on the market.
In addition, the basic infrastructure has already gone through a long way. The speeds that once occupied 200 milliseconds fell to 10 or 20. Amazon and Google’s Cloud ecosystems, having P2P messages between clusters, allow you to completely process transactions on the network.
This layer of performance is no longer a bottleneck – it’s starting. Authorizes market and commercial bot producers for sleek operation, especially since 70% to 90% of Stablecoin transactions volumes, which is the main segment of the cryptographic market, now comes from automated trade.
Better lonely plumbing is not enough. These results should be paired with clever interoperability at the protocol level and the unified liquidity routing. Otherwise, we will continue to build rapid systems on crushed ground. Despite this, the foundation is already there and finally mighty enough to support something bigger.
Opinion: Arthur Azizov, founder and investor at B2 Ventures.
This article is used for general information purposes and should not be and should not be treated as legal or investment advice. The views, thoughts and opinions expressed here are themselves and do not necessarily reflect or represent the views and opinions of Cointelegraph.
