How Does a protocol’S’liquidity Depth’ Act as a Competitive Barrier?

Liquidity depth, or the total amount of assets available for trading a token without causing significant price impact (low slippage), acts as a strong competitive barrier. Protocols with high liquidity depth are more attractive to large traders and institutions, reinforcing network effects.

Competitors find it difficult to attract users away because their pools lack the depth to handle large trades efficiently, making the original protocol's token more intrinsically valuable.