Opinion by: Arthur Azizov, founder and investor of B2 Ventures
Despite its decentralized nature and its major promises, cryptocurrency is always a currency. Like all currencies, it cannot escape the realities of today’s market dynamics.
As the cryptography market develops, it begins to reflect the life cycle of traditional financial tools. The illusion of liquidity is one of the most urgent problems and, surprisingly, less discussed which arise from the evolution of the market.
The global cryptocurial market was estimated To 2.49 billions of dollars in 2024 and is expected to be more than $ 5.73 billions by 2033, increasing at an annual growth rate made up of 9.7% in the next decade.
Under this growth, however, is a fragility. Like the FX and Bond markets, the crypto now questions ghost liquidity: control books that seem robust during calm periods are quickly shrinking during the storm.
The illusion of liquidity
With more 7.5 dollars In the volume of daily exchanges, the exchange market has always been perceived as the most liquid. However, even this market now shows signs of fragility.
Certain financial and traders institutions fear the illusion of depth of the market, and regular slides even on the most liquid FX pairs, such as EUR / USD, become more tangible. Not a single bank or a market is ready to deal with the risk of holding volatile assets during a sale – the so -called warehouse risks after 2008.
In 2018, Morgan Stanley note A deep change in the place where liquidity risks reside. After the financial crisis, capital requirements pushed the banks outside the supply of liquidity. The risks have not disappeared. They just went to asset managers, ETFs and algorithmic systems. There was a boom of passive funds and vehicles negotiated in exchange at the time.
In 2007, index style funds detained Only 4% of the free MSCI world float. In 2018, this figure had tripled to 12%, with concentrations of up to 25% in specific names. This situation shows a structural gap – liquid packaging containing illiquid assets.
The FNB and passive funds have promised an easy entry and exit, but the assets they owned, the obligations of companies in particular, could not always meet expectations when the markets became volatile. During drastic price fluctuations, FNBs are often sold more intensively than underlying assets. Market manufacturers have required wider or refused differences, not wanting to hold assets by troubles.
This phenomenon, observed for the first time in traditional finance, is now played with familiarity in crypto. Liquidity may seem robust only on paper. Onchain’s activity, token volumes and order books on centralized exchanges all indicate a healthy market. But when the feeling sovers down, the depth disappears.
The illusion of liquidity of cryptography finally appears
The illusion of liquidity in crypto is not a new phenomenon. During the Crypto 2022 slow-downMajor tokens have experienced substantial sliding and widening deviations, even on higher exchanges.
The recent Mantra OM token crash crash is another reminder – when feeling changes, offers disappear and pricing is evaporating. What first resembles a deep market in calm conditions can instantly collapse under pressure.
This occurs mainly because the crypto infrastructure remains very fractured. Unlike FX actions or markets, cryptographic liquidity is dispersed in many exchanges, each with its own order book and market manufacturers.
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This fragmentation is even more tangible for level 2 tokens – those outside the Top 20 by market capitalization. These assets are listed in all unified price exchanges or liquidity support, based on market manufacturers with different mandates. Thus, liquidity exists but without depth or significant cohesion.
The problem is getting worse with opportunistic players, market manufacturers and tokens projects, who create an illusion of activity without contributing to actual liquidity. Usurpation, washing trading and swollen volumes are common, especially on small exchanges.
Some projects even stimulate an artificial market depth to attract lists or to seem more legitimate. When volatility strikes, however, these players instantly withdraw, leaving retail merchants to the end with a price collapse. Liquidity is not only fragile, it is simply false.
The solution to the liquidity problem
Integration into the basic protocol is necessary to treat liquidity fragmentation in the crypto. This means integrating the bridging and routing functions directly into the central blockchain infrastructure.
This approach, now actively adopted by certain layer 1 protocols, deals with the movement of assets not as a reflection after the fact but as a principle of fundamental conception. This mechanism helps unify liquidity pools, reduce market fragmentation and ensure a flow of fluid capital on the market.
In addition, the underlying infrastructure has already traveled a long way. The execution speeds that have taken 200 milliseconds are now reduced to 10 or 20. The Amazon and Google Cloud ecosystems, with P2P messaging between clusters, make it possible to fully treat transactions in the network.
This performance layer is no longer a bottleneck – it is a bay leaf. It allows market manufacturers and trading bots to operate in a transparent manner, especially from 70% to 90% of stablecoin transaction volumes, which is a major segment of the cryptography market, now come automated trading.
However, better plumbing is not enough, however. These results must be associated with intelligent interoperability in the protocol and unified liquidity routing. Otherwise, we will continue to build high -speed systems on the fragmented terrain. However, the foundation is already there and finally strong enough to support something bigger.
Opinion of: Arthur Azizov, founder and investor at B2 Ventures.
This article is for general information purposes and is not intended to be and must not be considered as legal or investment advice. The points of view, the thoughts and opinions expressed here are the only of the author and do not reflect or do not necessarily represent the opinions and opinions of Cointellegraph.
