Liquidity
Liquidity is assessed as the ability of the token holder to exchange their token for another store of value. At best, this process is atomic, meaning that the transfer between the two assets happens in the same transaction.
Atomic transfers are required in the case of liquidation, which occurs when a borrower’s outstanding loan value exceeds a threshold of its collateral value, known as the Liquidation Loan-to-Value. This parameter, observed in markets, is explained later. Liquidation involves selling the collateral asset in exchange for the loan asset to repay the lender, thus requiring atomicity.
Atomic liquidity can be achieved through primary redemptions or secondary market swaps. A primary redemption is executed directly with the issuer, sometimes through a decentralized PSM (Peg Stability Module), which is a reserve of on-chain assets that can be swapped against the issued token. Secondary market liquidity is obtained through liquidity pools, where liquidity providers allow users to swap between the pool’s assets in a permissionless way.
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