Opinion: Arthur Azizov, founder and investor of B2 Ventures
Despite its decentralized nature and great promise, cryptocurrencies are still currency. Like all currencies, there is no escape from the reality of today’s market dynamics.
As the crypto market develops, it begins to reflect the lifecycle of traditional financial tools. The illusion of liquidity is one of the most pressing and surprisingly less addressed issues that stem from the evolution of the market.
The global cryptocurrency market was valued at $2.49 trillion in 2024 and is expected to more than double to $5.73 trillion by 2033, growing at a combined annual growth rate of 9.7% over the next decade.
But there is vulnerability beneath this growth. Like the Forex and Bond markets, Crypto is currently challenging the liquidity of its Phantoms. Orders that appear robust during mild periods will quickly fade during the storm.
Fantasy of fluidity
With daily trading volumes of over $7.5 trillion, the forex market has historically been recognized as the most liquid. But even this market shows signs of vulnerability.
Some financial institutions and traders fear the fantasies of market depth, and even the most liquid FX pairs like EUR/USD have become more specific with regular slippages. Single banks and market makers are not prepared to face the risk of holding unstable assets during the sale.
In 2018, Morgan Stanley noted a major change in where liquidity risks existed. After the financial crisis, capital requirements have driven banks out of liquidity provision. The risk did not go away. They went to asset managers, ETFs and algorithmic systems. At the time there was a boom in passive funding and exchange trade vehicles.
In 2007, the Index Style fund held only 4% of the MSCI World Free Float. By 2018, that number had tripled, with certain names at concentrations up to 25%. This situation shows a structural discrepancy – liquid wrappers containing non-current assets.
ETFs and passive funds have promised easy entry and exits, but they have not always met expectations, especially when corporate bonds, and when the market becomes unstable. During dramatic price fluctuations, ETFs are often sold more intensively than underlying assets. Market makers either asked for a wider spread or refused to enter and were reluctant to hold assets through confusion.
This phenomenon was first observed in traditional finance and is now unfolding in familiarity in Crypto. Fluidity may only appear robust on paper. On-chain activities, token volumes and orders for centralized exchanges all represent a healthy market. However, when the emotions become sour, the depth fades away.
Crypto’s illusion of fluidity is finally revealed
The illusion of cryptographic fluidity is not a new phenomenon. During the 2022 cryptography slump, major tokens experienced considerable slippage and expanded spreads, even in top exchanges.
The recent crash of Mantra’s OM tokens is another reminder when emotions change, bids disappear and price support evaporates. What appears to be a deep market in a mild situation at first can collapse immediately under pressure.
This occurs primarily because the crypto infrastructure remains very fractured. Unlike the stock and Forex markets, crypto liquidity is scattered across many exchanges, each with its own order book and market maker.
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This fragmentation is even more specific for tier 2 tokens, i.e. tokens other than market capitalization tokens. These assets are listed across the exchange without unified pricing or liquidity support and rely on market makers with different missions. So, fluidity exists, but there is no meaningful depth or aggregation.
This issue gets worse with opportunistic actors, market makers, and token projects, creating an illusion of activity without contributing to actual liquidity. Spoofing, cleaning, cleaning and expanding amounts are especially common for small-scale replacements.
Some projects stimulate the depth of the artificial market to attract lists and make them look more legal. However, when volatility hit, these players were quickly pulled back, leaving retailers toe-to-toe with price breaks. Not only is fluid fragile, it’s simply fake.
Solutions to liquidity problems
To address liquidity fragmentation in crypto requires integration at the basic protocol level. This means embedding cross-chain bridging and routing capabilities directly into the core infrastructure of the blockchain.
This approach is currently actively adopted by the Select Layer-1 protocol, treating asset movements not as an afterthought, but as a basic design principle. This mechanism helps unify the liquidity pool, reduce market fragmentation, and ensure smooth capital flows across the market.
What’s more, the underlying infrastructure has come a long way. Running speeds that once took 200 ms have now been reduced to 10 or 20. Amazon and Google’s cloud ecosystem features P2P messaging between clusters, allowing you to handle transactions completely on your network.
This performance layer is no longer a bottleneck. It’s a launchpad. Especially since 70%-90% of Stablecoin trading volume, a major segment of the crypto market, currently comes from automated trading, it allows market manufacturers and trading bots to work seamlessly.
However, piping alone is not enough. These results should be combined with smart interoperability at the protocol level and unified liquidity routing. Otherwise, we will continue to build a high-speed system on fragmented ground. Still, the foundation is already there and is strong enough to support the big ones in the end.
Opinion: Arthur Azizov, founder and investor of B2 Ventures.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
