Dimension 9: Liquidity & Market Structure
Conditional: liquidation cascades, holder concentration (Gini), exit queue analysis. Active for protocols with tradeable positions.
What We Measure
This conditional dimension activates for protocols with tradeable positions, liquid tokens, or withdrawal mechanisms. We analyze how the protocol behaves under liquidity stress — when everyone wants to exit simultaneously. This covers liquidation cascade potential under correlated market moves, holder concentration (Gini coefficient of token distribution), exit queue mechanics and their failure modes under stress, slippage under high-volume exit scenarios, market depth relative to total obligations, and the protocol's behavior when liquidity assumptions break down.
What Raises This Score
Well-distributed token holdings (low Gini coefficient)
Graceful exit queue mechanics that prevent bank-run dynamics
Liquidation mechanisms proven under real market stress
Sufficient market depth relative to total position sizes
Circuit breakers that pause during extreme liquidity events
Multiple exit paths (secondary markets + protocol redemption)
Stress-tested under simulated extreme withdrawal scenarios
What Lowers This Score
Highly concentrated holdings (whale dominance)
Exit queues that fail or deadlock under mass withdrawal
Liquidation cascades that amplify rather than absorb stress
Thin liquidity relative to total protocol obligations
No circuit breakers or pause mechanisms during liquidity crises
Single exit path with no secondary market alternative
Untested withdrawal mechanics at scale
Why This Weight
This is a conditional dimension (0% base weight) that activates only for protocols where liquidity risk is material — those with tradeable positions, liquid staking tokens, or withdrawal queues. When active, its weight is redistributed from the base allocation. It is conditional because not all protocols face liquidity risk: an immutable AMM like Uniswap has fundamentally different liquidity dynamics than a liquid staking protocol.