Glossary · DeFi
Liquidity risk
Also: withdrawal queue
Liquidity risk in DeFi is the risk that a depositor cannot withdraw on demand because the underlying capital is lent out or locked, a distinct problem from insolvency since the position can be fully backed and still illiquid.
Related terms
- Utilization rate
- Utilization rate is the share of a lending pool's deposits currently borrowed, the input to the interest rate curve and the reason withdrawals can queue when it approaches 100 percent.
- Vault
- A vault is a smart contract that pools depositor funds, deploys them into a strategy, and issues shares whose redemption value rises as the strategy earns, so depositors hold a proportional claim rather than a fixed balance.
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