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How Does the Concept of ‘Liquidity’ in a DeFi Ecosystem Relate to Network Effect?

High liquidity attracts more traders, which deepens liquidity further, reducing risk and driving network adoption.
Greeks.Live05.11.25

How Does the Concept of ‘Liquidity’ in a DeFi Ecosystem Relate to Network Effect?

Liquidity is the ease with which an asset can be converted without impacting its price, and it is a powerful network effect driver in DeFi. High liquidity in decentralized exchanges (DEXs) attracts more traders and large institutions.

This influx further deepens liquidity, creating a positive feedback loop. Greater liquidity reduces slippage and execution risk, making the platform more attractive for financial derivatives trading.

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