Liquidity Risk

How OLTA identifies and mitigates the risks associated with liquidity and execution slippage.

Nature of the Risk

Liquidity risk arises when an asset cannot be bought or sold quickly without significantly impacting its market price. In the crypto space, this is exacerbated by:

• Shallow liquidity pools, particularly among mid- and lower-cap tokens. Many crypto assets outside the top-tier market caps have limited on-chain liquidity. Even modest trade sizes can result in significant price slippage, reducing execution efficiency and distorting index performance. Even modest trade sizes can lead to significant price slippage, affecting execution quality and NAV precision.

• Fragmented markets across DEXs and CEXs. Token liquidity is often split across multiple decentralized and centralized venues, with differing pricing and depth. This complicates price discovery and increases the risk of inefficient trade execution.

• Lack of institutional-grade market-making. Unlike traditional finance, crypto lacks stable participation from institutional market makers. This leads to thin order books, wider spreads, and price sensitivity during normal trading activity.

• High on-chain gas costs during volatile periods. Network congestion during volatile events can drastically increase gas fees, delaying execution or making on-chain trades economically unviable.

If not properly accounted for, liquidity risk can lead to:

• Misleading NAV calculations. Price feeds that ignore slippage or fail to aggregate liquidity may produce NAV values that do not reflect real trading conditions.

• Skewed index weights. Illiquid tokens may be overrepresented in the index due to outdated or unfiltered market cap data, distorting true market exposure.

• High execution costs for index entry/exit. Users may face increased gas fees and slippage, eroding returns or reducing the efficiency of portfolio rebalancing.

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Liquidity Risk Mitigation at OLTA

OLTA employs a proactive and data-driven approach to filter, adjust, and dynamically adapt to liquidity constraints in real time.

1. Minimum Depth & Volume Requirements Assets must meet baseline liquidity thresholds before index inclusion (e.g., $4M+ 24h volume, $100k+ order book depth at <1% spread).

2. Multi-Venue Liquidity Aggregation Liquidity is assessed across both centralized and decentralized venues to avoid skewed assessments from single-exchange anomalies.

3. Exclusion of Friction-Prone Assets Tokens with known withdrawal issues, bridge dependencies, or illiquid wrappers are excluded after review, preserving frictionless entry/exit for investors.

4. Liquidity-Weighted Allocation Logic Index construction logic may cap or downweight low-liquidity assets, even if eligible, to ensure a high overall execution score and minimize drag during rebalancing.