Reader objective
Test whether an on-chain position can be exited at client size.
Use the right liquidity measure
| Measure | What it answers | What it misses |
|---|---|---|
| TVL | How much value the protocol reports | Borrowed, locked, or unavailable capital |
| Available liquidity | What can be withdrawn from a lending pool now | Future borrower and depositor behavior |
| Market depth | What can be sold near the quoted price | Issuer redemption and market stress |
| Redemption capacity | What the issuer will redeem and when | Secondary-market execution |
Size the client, not the protocol
Calculate the client position as a share of immediately available liquidity and realistic market depth. A venue can be large in aggregate while a particular asset, chain, vault, or maturity is too small for the intended position.
Stress the path out
- Normal withdrawal at current utilization
- Withdrawal after utilization rises
- Secondary sale with measured slippage
- Issuer redemption with stated gates and cutoffs
- Chain congestion, pause, oracle failure, or depeg
Document which exit path is contractual, which is technical, and which depends on another market participant.
Monitor the warning variables
Track available liquidity, utilization, market depth, redemption queues, depeg, bridge inventory, withdrawal fees, and governance changes. A rising yield paired with falling liquidity is a risk signal, not automatically an opportunity.