Description: Liquidity risk refers to the possibility that an asset cannot be sold quickly in the market without incurring a significant loss. In general, this risk is relevant across various financial markets and instruments, including traditional assets as well as digital assets within the context of decentralized finance (DeFi), blockchain, and cryptocurrencies. Due to the volatile and often illiquid nature of many assets, liquidity can vary significantly depending on market conditions. An asset with low liquidity may be difficult to sell, leading sellers to accept much lower prices to complete a transaction. This is critical in any financial ecosystem, as users often rely on the ability to exchange assets quickly and efficiently. A lack of liquidity can result in unexpected losses, especially during times of market volatility. Therefore, understanding and managing liquidity risk is essential for investors and users across various platforms, as it can affect not only the profitability of their investments but also their ability to access funds in critical moments.
