Layer by Layer 36: Avalanche, Solana, and Cosmos

One of the major side effects of market drawdowns is the accompanying decrease in market liquidity. As asset prices become more volatile, liquidity providers may reduce their exposure to unstable assets to protect against downside risk. This, in turn, results in generally higher price slippage for trades and compounds into further volatility. In the crypto markets, these effects can be observed across both centralized (CEX) and decentralized exchanges (DEXs).

Over the past two weeks, as of this writing, the average slippage for a $100K BTC sell order on Binance US has risen from 7.5 to 10.3 basis points (bps). For the same order on Kraken and Gemini, slippage rose from 1.7 to 2.8 bps and 5.6 to 9.0 bps, respectively. DEXs across Ethereum have seen a significant reduction in liquidity during periods of market uncertainty this year, including in early May during the Terra collapse, as well as the week leading up to the June Federal Open Market Committee (FOMC) meeting.