Liquidity Crisis: $12B in DeFi Liquidity Went Unused

A report from 1inch highlights a significant issue in decentralized finance (DeFi), revealing that between 83% and 95% of liquidity in key pools like Uniswap and Curve is not utilized effectively, leaving billions idle. This phenomenon adversely impacts retail liquidity providers, as 50% report losses from impermanent loss, resulting in deficits exceeding $60 million. In Uniswap v2, for instance, only a minuscule 0.5% of liquidity is actively traded, rendering approximately $1.8 billion inactive. Compounding this problem is the fragmentation of liquidity across over seven million pools, complicating trade routing and diminishing returns for providers. To address this crisis, 1inch proposes the Aqua protocol, which allows DeFi applications to share a common capital base, thus optimizing liquidity usage and potentially increasing returns for liquidity providers. With this approach, users can maintain custody of their assets while involving them in various strategies without the risk of locking them in complex contracts.

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