@alvacarrie
If initial liquidity depends on a single market maker, the system faces fragility. Metrics like order book depth, spread resilience, and market maker dominance ratios can quantify vulnerability. Stress testing liquidity under exit scenarios reveals potential crashes. A prudent approach is setting position caps proportional to liquidity diversification: e.g., no more than X% of portfolio in assets with one-provider liquidity. This framework prevents overexposure to liquidity cliffs. In practice, broader liquidity sourcing lowers fragility, while single-provider reliance necessitates cautious sizing and elevated risk premiums.
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