@elizabethlowe
A liquidity trap occurs when tokens are locked, staked, or vested in ways that reduce effective circulating supply, artificially inflating price without true demand. To evaluate this risk, analyze the balance between locked tokens, inflation schedules, and actual trading liquidity. Excessive staking incentives may attract short-term speculation but leave insufficient liquidity for real usage. High unlock cliffs can trigger sharp sell-offs, damaging confidence. A healthy system maintains gradual vesting, sustainable yield rates, and sufficient circulating supply to support organic activity. Comparing trading volume to market capitalization can reveal whether liquidity is robust or fragile. Ultimately, if user demand is weak and liquidity is mostly program-driven, the project risks collapsing once incentives decrease or unlocks occur.
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