The Shiba Inu token has seen a whopping 70% decline in its total value locked (TVL) after it reached a local high.

The biggest Shiba Inu pool on Uniswap V3 is called the SHIB-WETH (0.3%) pool and it currently has a value of $1.8 million.

This is a significant drop from its all-time high value of about $10.8 million. In contrast, there is a rise in the annual percentage yield (APY) of the SHIB pool.

DEX

When it comes to providing digital assets with liquidity, a key role is played by decentralized exchanges (DEXs) and this particularly applicable to those tokens that are not listed on centralized exchanges.

The price of the token can take a hit as well as its trading activity when there is a fall in liquidity levels, which is currently apparent in the case of the SHIB-WETH pool on the DEX Uniswap V3.

The price volatility rises because of low liquidity, which makes it challenging for investors and traders to exit and enter positions.

Furthermore, it can also lead to wider bid-ask spreads and higher slippage rates, which discourages market participants from engaging in trade where the token is concerned.

APY

Even though the TVL of the Shiba Inu token may have recorded a massive decline, the rising APY in the Shiba Inu pool could give investors a glimmer of hope.

More liquidity providers are drawn in due to a higher APY, which can potentially give the liquidity of the pool a boost over time.

Nonetheless, it is important to consider the risks that are involved with providing volatile assets, such as the Shiba Inu token, with liquidity.

This is because there can be a significant impact on returns because of impermanent loss, particularly if the performance of the SHIB token is taken into consideration.

Liquidity challenges

In order to deal with its current liquidity crises and to be able to regain its footing in the market, there are a number of factors related to the Shiba Inu token that need to align.

These include some good developments within the Shiba Inu ecosystem, higher use cases and adoption rates as well as broader support in the market for meme tokens in general.

The launch of the layer-2 Shibarium protocol could certainly be helpful in this regard. Likewise, SHIB’s metaverse project is also scheduled for release this year, which could deliver another boost.

At the time of writing, the price of the SHIB token stood at $0.00001, which is a decline of 5.8% from its recent high.

The change of the Twitter logo to the DOGE mascot had given the price of the Shiba Inu token a boost this week.