Thomas
@miauuu
A decline in Ethereum liquidity pool depth typically increases price volatility. Liquidity pools provide the market with readily available assets for trading. When depth decreases—meaning fewer assets or less capital are locked in the pool—it reduces the buffer against large trades. As a result, even modest buy or sell orders can cause disproportionate price swings, amplifying volatility. This effect is especially pronounced in decentralized finance (DeFi), where thin liquidity can lead to slippage and exaggerated market reactions. Conversely, deeper pools absorb larger trades with minimal price impact, stabilizing the market. Thus, declining pool depth often signals heightened sensitivity to trading activity, driving sharper price fluctuations.
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