QX DeFi Risks Compass
  • 💡GETTING STARTED
    • About
    • License
    • How to Give Attribution For Usage of QX DeFi Risks Compass
  • 🏦Risks in TradFI
    • Global Finance - Key Framework
    • Risk Frameworks
    • Basics I - Terminology & Concepts
  • ⛓️RISKS IN DEFI
    • Deciphering DeFi Risks
    • DeFi Risk Management
    • EEA DeFi Risk Assessment Guidelines
    • Basics II - DeFi
  • 🥷Systematic Risks
    • Market Risk
      • Defining Market Risk
      • Assessing Market Risk
      • Managing Market Risk
      • In Practice
      • Liquidity Risk
        • Defining Liquidity Risk
        • Assessing Liquidity Risk
        • Managing Liquidity Risk
        • In Practice
    • Compliance & Legal Risk
      • Defining Compliance & Legal Risk
      • Assessing Compliance Risk
      • Managing Compliance Risk
      • In Practice
    • Bridge Risk
      • Defining Bridge Risk
      • Assessing Bridge Risk
      • Mitigating Bridge Risk
      • In Practice
    • Oracle Risk
      • Defining Oracle Risks
      • Assessing Oracle Risks
      • Managing Oracle Risks
      • In Practice
  • 🥷UNSYSTEMATIC RISKS
    • Software Risk
      • Defining Software Risks
      • Assessing Software Risks
      • Managing Software Risks
      • In Practice
    • Economic/Financial Risks
      • Defining Economic Risks
      • Assessing Economic Risks
      • Managing Economic Risks
      • Tokenomics Risk
        • Defining Tokenomics Risks
        • Assessing Tokenomics Risk
        • Managing Tokenomics Risk
      • MEV Risk
        • Defining MEV Risk
        • Assessing MEV Risk
        • Managing MEV Risk
      • Credit Risk
        • Defining Credit Risk
        • Assessing Credit Risk
        • Managing Credit Risk
    • Governance Risk
      • Defining Governance Risk
      • Assessing Governance Risk
      • Managing Governance Risk
    • Standards Conformance Risks
      • Defining Standards Conformance Risks
      • Assessing Standards Conformance Risks
      • Managing Standards Conformance Risks
    • Security Risk
      • Security Risk Assessment
      • Security Risk Mitigation
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  1. Systematic Risks
  2. Market Risk
  3. Liquidity Risk

Managing Liquidity Risk

Managing Liquidity Risk

To manage liquidity risk, DeFi stakeholders (protocols and investors) employ various strategies, such as maintaining sufficient liquidity reserves, utilizing stablecoins to reduce volatility, implementing efficient price discovery mechanisms, and conducting regular audits to ensure smart contract security. Additionally, diversification of assets and liquidity sources can help mitigate the impact of liquidity risk.

EEA Liquidity Risk Mitigation Guidelines

Adequate Capital Reserves

Protocols SHOULD demonstrate Adequate Capital Reserves.

Unleveraged liquidity reserves

Protocols SHOULD hold reserves for liquidity that are not leveraged.

Results of Stress Tests

Protocol Reports SHOULD detail the results of stress tests and analyses related to liquidity shocks and adverse market conditions, including any identified vulnerabilities and proposed mitigations.

Hedging

Users, protocols and investors SHOULD hold a range of tokens or other hedges against a liquidity problem in a given Protocol.

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Last updated 1 year ago

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