How Does a Sudden Token Dump Affect Market Liquidity?
A sudden token dump, where a large holder sells a massive amount of tokens, significantly reduces market liquidity, especially on decentralized exchanges (DEXs). The large sale quickly drains the available tokens in the liquidity pool, causing a massive price slippage and making it difficult for other traders to execute orders at a stable price.
This leads to a rapid price crash and high volatility.
Glossar
Price Crash
Collapse ⎊ A price crash, within cryptocurrency markets and derivative instruments, represents a precipitous and sustained decline in asset value, often exceeding 20% within a short timeframe, frequently triggered by a confluence of factors including leveraged liquidations, macroeconomic shocks, or cascading margin calls.
Price Slippage
Variance ⎊ Price slippage, within cryptocurrency, options, and derivative markets, represents the difference between the expected trade price and the actual execution price.
Sudden Token Dump
Trigger ⎊ A sudden token dump represents an accelerated divestment of a cryptocurrency asset, often initiated by a large holder or coordinated group, resulting in a rapid price decline.
Decentralized Exchanges
Access ⎊ These platforms offer permissionless entry to cryptocurrency and tokenized asset markets, democratizing capital deployment into novel financial structures.