Liquidity Migration Mechanics

Liquidity migration mechanics describe the process of moving capital from an older, potentially vulnerable version of a protocol to a new, patched version. Because blockchain assets are held in smart contracts, this process cannot be automated by the developers alone.

It often requires users to manually withdraw their funds from the old contract and deposit them into the new one. This creates significant risks of capital fragmentation and liquidity decay if users are slow to migrate.

Effective migration strategies often involve incentive programs, such as token rewards, to encourage users to move their capital quickly.