Beyond volatility: why liquidity remains the central issue for crypto according to Auros

Crypto markets face a structural hurdle far more serious than volatility: chronic liquidity shortages. This is the conclusion drawn by Jason Atkins, commercial director at Auros, the specialist in crypto market making, who analyzes the real obstacles to institutional expansion in the sector.

Contrary to the widespread idea that volatility puts off large investors, Auros finds that the problem lies elsewhere. “You can’t just say that institutional capital wants to come in if you don’t have a path for them to do so,” Atkins says. The fundamental question becomes: do the markets have enough depth to absorb the flows that Wall Street wants to deploy?

The liquidity deficit slows down the institutional arrival

For months, the industry has been singing the praises of growing institutional demand. However, a recurring observation emerges under the headlines: the liquid resources available are structurally insufficient to allow large institutions to intervene at their usual scale without destabilising prices.

According to Auros, recent events are not the only reasons for this shortage. The major delusion cycles—of which the October 10 crash remains a prominent example—have expelled traders and leverage from the system faster than they can get back to it. Liquidity providers, such as Auros’ market makers, react to demand rather than actively create it. As a result, a natural decline in trading automatically leads to a reduction in risk-taking and market depth.

A self-perpetuating spiral of illiquidity and volatility

This dynamic generates a pernicious cycle. Reducing the depth triggers more volatility. This volatility itself causes tighter risk controls, which in turn cause a further withdrawal of liquidity. “The problem arises when volatility collides with illiquid markets,” Atkins says. In such markets, hedging a position becomes complex, and liquidating it is even more difficult.

This self-sustaining spiral poses a structural challenge that institutions, according to Auros, cannot solve alone. As long as the markets remain illiquid, large structures have no natural guarantee to stabilize prices in the event of tension. Institutional interest persists, but without the required liquidity conditions, this interest remains paralyzed.

Why institutional mandates require robust liquidity

The crux of the problem lies in the nature of the mandates that large institutions manage. Unlike retail traders who can tolerate some liquidity risks, large allocators operate under strict capital preservation constraints.

“When you have that much wealth, or if you’re a major institutional player, it’s not a question of ‘can you maximize returns.’ It’s about ‘can you maximize return while preserving capital,’” Atkins says. This distinction completely transforms the calculation of risk. Institutions simply cannot accept the current market conditions, where a position that is difficult to hedge equates to unacceptable risk.

Beyond the volatility-liquidity debate: a phase of consolidation

Auros observes that the crypto industry is crossing a different threshold. Far from being in a phase of chaotic growth, it is entering a period of consolidation. “Financial innovation is no longer as dynamic,” notes Atkins. The fundamental primitives of the protocol—Uniswap and AMMs as examples—no longer represent novations.

What the cryptocurrency is currently experiencing looks like an “LLM moment”. The sector is not lacking in long-term interest, but must generate new structures capable of generating sustainable commitment. Without substantial innovation attracting new capital, the liquidity shortage persists above all as does a lack of new structural catalysts.

Until markets can absorb the required size, hedge risks effectively, and allow for clean outflows, new capital will remain prudently on the sidelines. The equation that industry must solve therefore goes beyond simple fluctuations: it is liquidity, not narrative, that will determine when institutions will finally be able to act to the extent of their appetite.