> For the complete documentation index, see [llms.txt](https://docs.fira.money/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.fira.money/security-and-risk/risk-framework/liquidity-risk.md). # Liquidity Risk ## Definition Liquidity risk is the potential inability to enter, exit, repay, or unwind a position at a reasonable price within expected timeframes due to insufficient market liquidity. ## Three Primary Risk Categories ### Fixed-Maturity Borrowing Early loan settlement through AMM swaps may result in unfavorable pricing due to slippage and price impact, or complete inability to execute, potentially forcing holders to wait until maturity. ### Floating-Rate Lending Lenders can withdraw unutilized assets, but redemptions may become dependent on borrowers repaying, creating potential withdrawal delays when utilization is high. ### Liquidity Providers Reserve rehypothecation means not all reserves may be liquid at all times, potentially causing temporary withdrawal restrictions. ## Risk Scenarios * AMM liquidity depletion during volatility * Rapid withdrawal runs causing utilization spikes * Rehypothecation lockups * Correlated stress events that simultaneously impact multiple risk factors ## Mitigations (With Caveats) Fira employs liquidity incentives and rate responses, but these are not guarantees and may not work under stress. Alternative settlement pathways exist but become costly or unavailable during stress conditions. ## Key Warnings * Assume liquidity can disappear rapidly * Treat fixed-maturity early exits as risky * Recognize that floating-rate withdrawals lack guaranteed timing * Avoid relying on interface estimates during market stress --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter, and the optional `goal` query parameter: ``` GET https://docs.fira.money/security-and-risk/risk-framework/liquidity-risk.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is optional and describes the broader end goal you are ultimately trying to accomplish on behalf of the user. GitBook uses it to tailor the answer towards what is most useful for that goal. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.