Liquidity determines whether an asset can gain market confidence. When a market has sufficient depth, large funds can enter and exit without resistance, whales can freely build positions, and assets become high-quality collateral in the eyes of banks—because borrowers know clearly that they can exit whenever they want. Conversely, assets without liquidity are the opposite.

Shallow trading depth fails to attract users; with fewer users, trading becomes even sparser, ultimately falling into a self-reinforcing "liquidity death spiral"—assets become less and less in demand, and less demand leads to even less liquidity.

Tokenized assets once held great promise. Many believed they could connect on-chain and off-chain activities, unleash the financial efficiency of DeFi, and bring trillions of traditional financial markets onto the blockchain. The ideal scenario is that anyone can trade freely, borrow and lend at will, and create innovative combinations in traditional finance that are unimaginable off-chain.

But reality delivered a slap in the face. Most tokenized assets actually operate in markets that cannot withstand turbulence, with liquidity so thin that meaningful capital flows are impossible. The "liquidity" that was supposed to unlock DeFi's potential has never truly materialized. Small transactions may not reveal issues, but once capital attempts to scale in, hidden costs and risks are instantly exposed.

Even worse, the damage caused by insufficient liquidity goes far beyond trading costs. It can directly undermine the market mechanism itself. When liquidity dries up, price discovery becomes unreliable, the order book is filled with noise, and the oracles relying on this data also become inaccurate. In a tightly interconnected system, even the smallest trades can trigger a domino effect, and ultimately, no one can bear the fallout.