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Liquidity Crisis: $12B in DeFi Liquidity Sits Idle as 95% of Capital Goes Unused
Source: CryptoNewsNet Original Title: ‘Liquidity Crisis’: $12B in DeFi Liquidity Sits Idle as 95% of Capital Goes Unused Original Link: A new report from decentralized exchange aggregator 1inch has shown a growing crisis in decentralized finance (DeFi): the vast majority of capital deployed in major DeFi liquidity pools is not being used effectively.
According to data presented at Devconnect Buenos Aires, between 83% and 95% of liquidity in top pools, including certain DEX platforms (v2, v3, and v4), as well as Curve, remains idle for most of the year. That means billions of dollars sit in smart contracts without earning fees or generating meaningful returns.
In one major DEX platform alone, only 0.5% of liquidity typically falls within active trading price ranges, rendering nearly $1.8 billion ineffective according to the report.
This inefficiency hits retail participants the hardest. Research cited in the report shows that 50% of liquidity providers (LPs) are losing money when factoring in impermanent loss, with net liquidity provider deficits exceeding $60 million. In one notable example, a single DEX v3 pool saw over $30 million in lost profits due to Just-in-Time liquidity manipulation.