The DeFi Time Bomb: Market Manipulation, Low Liquidity Threaten Industry’s Future
A recent report by Kaiko Research outlines how market manipulation tactics are causing many institutional players and market makers to steer clear of decentralized finance (DeFi). The report cites sandwich attacks occurring on Uniswap and Hyperliquid as examples of the manipulative tactics that make DeFi less appealing to institutions.
To illustrate the extent to which these tactics undermine efforts to attract the masses to DeFi, the report cites a recent incident involving a USDC- USDT liquidity pool on Uniswap V3 on Ethereum. In this incident, a user attempted to swap 220,800 USDC for USDT. However, before the user could execute the swap, an attacker reportedly sold nearly 20 million USDC for USDT. This drastically dropped the price of USDC to 0.024 USDT for 1 USDC due to what the report described as reduced liquidity and increased slippage in the pool.
Consequently, the user received only 5,300 USDT instead of the expected 220,800 USDT, resulting in a loss of 215,500 USDT. According to the Kaiko Research report, the resulting slippage created a market risk for all traders using this liquidity pool at the time, including the victim of the sandwich attack.
As argued in the Kaiko Research report, unless stronger protections are established, institutional players will likely remain on the sidelines, and DeFi will continue to face increased scrutiny from regulators. This viewpoint is echoed by Robby Greenfield IV, CEO and founder of Umoja Labs, who identifies asset security as another key concern for institutional investors. Over the long term, Greenfield said manipulative tactics hurt DeFi’s chances of going mainstream.
“Of course, the prominence of sandwich attacks, front-running, and the reuse of historically traditional finance trading practices to economically exploit the lack of liquidity in DeFi protocols inhibit high-volume usage of most protocols as a source of investment for non-crypto-native institutions,” the Umoja Labs CEO said.
However, Ryan Chow, co-founder of Solv Protocol, insists that the lack of sustainable yield and the relatively small size of the market, rather than market manipulation, are the primary barriers to institutional participation in DeFi. In fact, Chow told Bitcoin.com News that if properly motivated, institutions could actually exacerbate DeFi’s market manipulation problem.
“I wouldn’t be surprised if institutions—equipped with sophisticated traders and advanced strategies—end up exacerbating market manipulation, given that retail participants often lack the same level of understanding. Therefore, it is crucial for the average person to be informed about these dynamics and explore potential tools to protect themselves,” Chow asserted.
Meanwhile, Greenfield recommends several measures, including full insurance of DeFi’s assets under management as well as implementing transaction privacy or obfuscation methods to counter sandwich attacks. Adopting these measures will mitigate financially motivated attacks and bolster institutional confidence, Greenfield said.
To address the issue of low liquidity, a condition that exacerbates market manipulation and slippage, the Umoja Labs CEO urged DeFi protocols to consider building or developing solutions that address unmet institutional needs. Protocols should also prioritize developing intrinsic protocol value before deploying token incentives.
On the question of protecting users, Bryan Chu, chief product officer at WOO X, told Bitcoin.com News that this comes down to “providing best-in-class user interface/user experience (UI/UX) to show sufficient warnings and recommendations to potential traders on their trade sizing.” Chu also agrees that user education can be the best way to help market participants tackle manipulative tactics.
“I think education is important, and it should be integrated into the trading experience. Users won’t sift through documents mid-trade, so embedding real-time tips and feedback into the UI/UX is more effective. For example, a tooltip explaining slippage tolerance or an alert suggesting an order size adjustment to avoid a sandwich attack,” Chu explained.
Chu meanwhile said DeFi platforms should take the lead in iterating risk control measures to reduce market manipulation. He said while external regulation is important, relying solely on it “could damage the decentralization ethos of DeFi by giving regulators the final say.”
Greenfield, on the other hand, believes regulation is not only necessary but inevitable. However, he admits the challenge lies in balancing regulation with decentralization principles.
“Striking this balance will be complex and take time, but ultimately, thoughtful regulation can strengthen DeFi rather than diminish it,” the Umoja Labs CEO argued.
免责声明:本文章仅代表作者个人观点,不代表本平台的立场和观点。本文章仅供信息分享,不构成对任何人的任何投资建议。用户与作者之间的任何争议,与本平台无关。如网页中刊载的文章或图片涉及侵权,请提供相关的权利证明和身份证明发送邮件到support@aicoin.com,本平台相关工作人员将会进行核查。

Cryptonews Official
2025/03/20 01:35
RWA boom is inevitable, but BSC sell-offs expose crypto risks: pro
Jack Tan, co-founder of WOO X, outlined key trends shaping the crypto market in a note to crypto.news.
Tan discussed the booming expansion of real-world assets and recent sell-offs within the Binance Smart Chain ecosystem. Tan pointed to the accelerating adoption of RWAs , with projections estimating the sector could reach $16.1 trillion by 2030.
“This showcases the long-term potential of asset tokenization,” Tan wrote in a note. “As the RWA sector matures, key projects such as ONDO, LINK, MKR, and PLUME—which focus on tokenization, liquidity, and decentralized finance infrastructure—are well-positioned to benefit from this growth.”
Institutional interest is rising, exemplified by BlackRock’s BUIDL fund, which has grown from an initial $100 million USDC in March 2024 to over $1 billion, capturing 30% of the tokenized U.S. Treasuries market.
Beyond Treasuries, RWAs are expanding into new financial products.
Ondo Finance recently partnered with Mastercard to integrate its OUSG bond fund into Mastercard’s Multi-Token Network, enabling crypto payments to interact with traditional financial systems.
Meanwhile, Coinbase is reportedly collaborating with Swiss tokenization firm Backed to launch tokenized stocks, such as “wbCOIN,” on its layer-2 network, Base , according to Tan. These developments reflect increasing institutional confidence in blockchain-based financial instruments.
The BSC ecosystem has seen increased liquidity in projects like MUBARAK , PALU, ATM, and Broccoli.
However, investor confidence was shaken after crypto influencer Wolfy_XBT was accused of triggering panic through aggressive sell-offs of BNB ( BNB ) Card-related tokens, Tan wrote. The event has fueled broader discussions about potential risks in tokenized ecosystems.
As RWAs gain traction and crypto markets respond to macroeconomic shifts, Tan stressed that projects such as ONDO ( ONDO ), LINK ( LINK ), Maker ( MKR ), and PLUME are well-positioned to capitalize on the evolving landscape.