The destruction and crash that the crypto market has been through during the past several weeks have badly affected the trust on crypto.
It’s not that often when we see any drawback or shortcoming of blockchain technology innovations including consensus mechanism, smart contracts, web 3 protocols etc. This mostly happened when some of these tech products came up with an issue that created an impact on a large scale. Lock-up periods as well for bonding or nonbonding, such mechanisms were fundamentally built upon numerous proof of stakes networks and liquidity pools that intend to mitigate the risks of massive sell off alongside promoting decentralization.
However, it still misses the inability to withdraw funds quickly and this becomes a reason for many to lose money. This includes even many prominent crypto firms. Proof of Stake networks like Polkadot (DOT), Solana (SOL) and badly hit Terra (LUNA) very much depends upon their validators in order to verify transactions take place on the network while maintaining the security and safety on the blockchain along with keeping it decentralized.
Liquidity providers across various protocols similarly offer liquidity on different networks and help each cryptocurrency respective to the network to improve in terms of their rate of exchange with different cryptocurrencies.
Lets take for instance, the fall of Terra network that raised many concerns and questions over the sustainability, reliability and ability of crypto projects. First and foremost, such instances put the assets of users on the platform into danger. During the collapse of Terra network, one of the worst hits was taken by its crypto lending protocol Anchor, going through a tough struggling phase of handling the depeg of Terra’s algorithmic stablecoin, UST.
What took place after that as everyone knows now, Anchor Protocol that had more than $17 billion worth of funds in its total value locked remained at below $1.8 million by 28th June. Following the Terra ecosystem fall, assets on Anchor protocol got locked up for three weeks.
Another example of such an instance could be halting the withdrawal operation of Celsius crypto lending firm amidst the market crash several days ago. Ongoing bear markets have shown most of the crypto community that despite being well organized, carefully evaluated, and even created by leading companies, they are still subject to be similar to gambling, given the locked up periods.
Source: https://www.thecoinrepublic.com/2022/06/29/how-lock-ups-in-staking-and-liquidity-pools-result-in-hindering-crypto-mass-adoption/