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How Does the Centralization of Liquidity Affect Market Depth across Crypto Exchanges?

Centralization leads to deep depth on dominant exchanges but shallow depth on smaller ones, increasing the risk of single-point-of-failure and favoring large exchanges for block trades.
Greeks.Live08.11.25

How Does the Centralization of Liquidity Affect Market Depth across Crypto Exchanges?

The centralization of liquidity, where a few large exchanges dominate trading volume, leads to deep market depth on those specific venues but shallower depth on smaller, fragmented exchanges. This concentration of liquidity can reduce overall market-wide depth and increase the risk of a single point of failure.

Institutional traders prefer these centralized, deep venues for block trades to minimize slippage.

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