Spot Price Skew

Spot price skew refers to the divergence between the current market price of an asset and its expected price based on broader market indicators. In decentralized exchanges, this often happens due to limited liquidity, where a relatively small trade can move the price significantly.

When the spot price is skewed, it no longer represents the global market value, making it a target for manipulation. Protocols that use this skewed price for collateral valuation or liquidation are at risk of insolvency.

Traders often monitor these skews to identify arbitrage opportunities, but they also serve as a warning sign for potential oracle vulnerabilities. Maintaining deep liquidity is the primary defense against spot price skew.