Research Report | Trading Platform's Liquidity and Market Pricing Standards


Liquidity is the ability of an asset to be bought or sold and converted to cash or other assets/passports easily, quickly, without cost/low cost. One of the most common ways to handle liquidity in the encryption market industry through a personal encryption platform is to merge with market makers, whether they are automated algorithms and smart contracts, or trading partner companies and groups or individuals.

Looking ahead, liquidity can ensure that everyone in the market is more affordable and fairer, because there is not much change in demand and supply. It also ensures faster trading hours, for obvious reasons, what the buyer or seller is looking for is readily available and therefore satisfied.

1. The liquidity of the trading platform: designed to maintain a more stable market and a more fair price

For the long-term, liquidity has always been one of the magic weapons for participating in the fierce competition in the encryption market. The quality of the transaction pair (in the sense of the project itself or the price increase) is well matched. The liquidity allows a trading platform to win quickly (bitcoin China, currency security are examples of this).

And liquidity is also an important guarantee for customers whether the trading experience is friendly and smooth. The ability to successfully buy/sell a large number of transactions in a short period of time without affecting the stability of the overall market price is an important consideration in the investor's trading process.

If liquidity is related to the competitiveness of the trading platform and the experience of investors, how to determine the price of a certain transaction, that is, the market-making standard, directly affects the transparency and fairness of the market. It should be further pointed out that liquidity and market pricing standards are not two unrelated indicators . Generally speaking, liquidity is more excellent, market pricing standards will become more diversified and transparent; in turn, the relevant behavior of market making will be Will provide liquidity to the market. These two indicators are essentially a two-sided composite.

Good liquidity can have a certain value at least at the following levels:

Provide better and fairer prices

A liquidity, single transaction pair (such as some small, unnamed trading platform currency, or even a single currency), its liquidity is very poor, even pure "bookkeeping" currency, liquidity Good trading pairs can trade smoothly on multiple major trading platforms (Bitcoin is the best-known example, and a large number of trading activities can drive it to form a “balanced price”, which can be seen for buyers and sellers. Profit.

● Provide a more stable market

In a trading platform with poor liquidity, large/majors can easily buy/sell in a single or several large amounts, which greatly affects the price of the entire market, while a liquid trading platform can better avoid this. A problem.

● Increase the correctness of technical analysis of the market

At present, there are a large number of third-party research teams in the encryption world delving into this market. Full liquidity can make the data “normal”, which is obviously beneficial to technical analysis.

2. Mainstream market pricing standards: obtaining fair value through price derivation

What about the market pricing mechanism? First of all, we need to understand that the meaning of the pricing mechanism is: when market makers make large and frequent purchases to increase liquidity/stable currency prices, a mechanism is needed to guide the price points of their entry and exit; or For investment research/analytical institutions, the market-based pricing mechanism has an auxiliary role in analyzing a range of data indicators.

What are its specific methods? Hackernoon showed us three kinds:

2.1 The price derivation of the syllogism

First, calculate the weighted average price of the dollar in the amount of the bitcoin calculated by the transaction amount of all Bitcoin/French transactions;

Secondly, list the bitcoin or dollar price of the encrypted assets that are denominated in bitcoin or fiat, and then use the bitcoin price calculated in the first part as the reference price to calculate the transaction amount of the encrypted assets listed. Calculated weighted average price;

Third, considering that not all crypto assets have bitcoin/dollar trading pairs, but they will form a trading pair with other cryptographic assets, so we use the dollar price of the cryptographic assets calculated in the second step as a reference. The reference price, which in turn calculates the dollar price of these crypto assets.

Fourth, repeat the above steps until all crypto assets get the corresponding dollar price.

Let's take the following currency as an example:

Assume the following transaction pairs: BTC/USD, ETH/BTC, ETH/USD, LTC/BTC, LTC/USD, LTC/ETH, MKR/ETH, MKR/LTC, ADA/MKR

First, use the BTC/USD trading pair to calculate the BTC price;

Calculate the dollar price of ETH and LTC through ETH/BTC, ETH/USD and LTC/BTC, LTC/USD;

Calculate the price of MKR through MKR/ETH, MKR/LTC;

Further, through the ADA/MKR transaction pair, the calculated value of the ADA price.

Through the above steps, it is not difficult to see that the price of the latter transaction is based on the calculation of the price of the previous transaction, and all of this is based on the calculation of the price of the bitcoin dollar, full of premise, small The syllogism of the premise, conclusion and other elements means that this is the origin of its name.

2.2 Revised the syllogism price derivation / Coinmarketcap possible pricing mechanism

This part is a pricing mechanism that Coconmarketcap may use by Hacernoon, which is more comprehensive than the first price derivation. The first two steps are the same, the difference starts with the third:

In addition to the fixed price of the BTC, using all available trading pairs, recalculate the token price in step two to arrive at an adjusted reference price;

Step 4 calculates the price of the remaining tokens;

Step 5 is recalculated again;

Step 6 repeat the above steps until all tokens have obtained the corresponding dollar price, and all transaction pairs are included in the calculation;

Similarly, we use the example in the “three-segment price derivation” to detail the following second calculation method:

Assume the following transaction pairs: BTC/USD, ETH/BTC, ETH/USD, LTC/BTC, LTC/USD, LTC/ETH, MKR/ETH, MKR/LTC, ADA/MKR

First, use the BTC/USD trading pair to calculate the BTC price;

Recalculate the ETH and LTC prices using the LTC / ETH pairs not used in step 2. The ETH dollar price found in step 2 can be included in the equation and the LTC dollar price and the LTC/ETH dollar transaction volume can be obtained;

Now we can recalculate the LTC average dollar price using three sets of trading pairs. The LTC dollar price (or even the most recently recalculated LTC price) found in step 2 can then be included in the LTC / ETH equation and the ETH dollar price and the new volume of the currency pair can be obtained;

Calculate the price of MKR;

Recalculate the price of LTC and ETH;

Then calculate the price of the ADA;

This approach includes the more niche transaction pairs in Method 1, making the overall pricing mechanism more comprehensive.

2.3 The Silicoin Methodology

The way is mainly through calculating the price of each pass on the trading platform for each trading platform.

The pass price of a particular trading platform is established from the best trading pair, ie with the minimum number of steps and the maximum trading volume

For trading platforms that do not have a legal currency transaction, use a mainstream pass to establish a legal link, after which:

1. Calculate the total trading volume of the pass in a particular trading platform as the trading volume of all trading pairs on the trading platform.

2. Calculate the transaction volume weighted average pass price for all trading platforms.

However, there are currently some misunderstandings in the pricing mechanism.

The main performance is that there are some problems with some third-party price indices. They will aggregate all the prices of a certain currency and then take the average directly. Due to the existence of market friction, this approach may lead to a significant deviation in prices.

Similarly, we cite the example of Hackernoon as follows:

Suppose we have the following trading pairs on a trading platform, MKR/BTC=0.092 and MKR/ETH=3.60;

First, we calculate the French currency prices of the two currencies through the BTC and ETH legal currency trading pairs in other trading platforms, which are assumed to be: BTC=$3,400 and ETH=$90;

Secondly, we use the above price to calculate the price of Maker. The price of MKR/BTC is $3,400*0.092=$312.8, and the price of MKR/ETH is $90*3.60=$324.0.

At this point, we can find that if the same transaction pair of different trading platforms is introduced as the reference price and then the price of other currencies is calculated, it is easy to have different prices. This is the role of so-called market friction and the opportunity for investors to arbitrage.

3. The necessity of market makers: major market participants and operational strategies

The main activity of the market maker is to create a healthy and active market for buyers and sellers by placing multiple limit orders in the order book of the trading platform. Institutions that offer market-making solutions are required to register and usually have a special agreement with the trading platform. Such agreements on the one hand give them special trading conditions, including lowering costs, but on the other hand, it requires market makers to provide a certain level of liquidity. The liquidity quality available for different trading platforms can be measured by order depth and spread size.

For trading platforms, liquidity is one of the most important aspects, and customers can trade encrypted assets at any given time without a lack of pairing or trading volume.

The spreads in the liquidity market are growing, making it cheaper for customers to enter and exit trading positions. More mature investors who are proficient in technical analysis may prefer markets with more stringent spreads because such markets are more predictable, so their analysis strategy is like this in comparison to markets with larger spreads. More reliable in the market.

At the same time, the impact of large orders on the possible price volatility of the liquidity market is less than that of the illiquid market.

One of the many benefits of having a market maker is the ability to support a large number of trading platforms and orderly development until the volume of transactions grows without any further market making.

Market makers can not only prevent illiquidity, but also prevent fluctuations in a given pass or trading platform. Higher liquidity allows traders who are about to buy or sell on the platform to trade instantly without having to wait for matching buyers (this often It is the reason why the new trading platform is difficult to maintain the market).

However, market makers do not specify the price of the asset. They act on market responses, provide orders, reduce spreads (price differences between buying and selling prices), develop listing strategies, assist in negotiating with trading platforms, and provide feedback on project marketing efforts.

Market making is more than just trading robots. Market makers need to understand order requirements, technical analysis and build custom trading software as part of the strategy, but should understand and consider macro conditions before implementing the strategy.

The main market makers currently active in the market include:

GSR Markets

Originally a Hong Kong-based algorithmic digital trading company, GSR Markets uses proprietary software to provide liquidity for multiple cryptographic assets and trading platforms.

The company supports market-making and over-the-counter trading through complex trade orders, including oversized and professional orders, and responds to cryptographic assets that are heavily influenced by media and world events. GSR is currently integrated with several digital asset trading platforms to provide these liquidity solutions on a global scale.

The company has a team that has worked at Goldman Sachs and IBM and has decades of experience in finance, quantitative investment and trading technology. He has also received training in business, mathematics, computer engineering and law from the Massachusetts Institute of Technology and Columbia University. The company is also a founding member of the Digital Asset Market Association (ADAM).

● Kairon Labs

Headquartered in Belgium and the Netherlands, Kairon Labs provides marketing services for all publicly available effect certificates and uses proprietary trading software like GSR.

Kairon is currently negotiating with major trading platforms to work directly with them. Its managers not only have degrees in informatics, business management, finance and insurance, but also experience in banking industry architecture, development of trading algorithms, financial consulting and asset trading experience.

● Coin Flow

Coin Flow is a Hong Kong-based encryption market maker that provides designated market and pass-issuing advisory services to the issuer and trading platform. It is currently providing market-making services for the top 100 projects. Their trading software is also built in-house, providing automatic monitoring 24/7.

Its proprietary software is currently integrated into several popular crypto asset trading platforms, including Binance, OKex, Bittrex, Kraken, Liquid, IDEX, Bit-Z and CoinBene.

The team has diverse experience in investment banking, high frequency trading, software development, business development and communications. According to its website, the company is ethical and has developed strategies for money laundering, terrorist financing and other financial crimes through corporate governance and anti-money laundering policies.

● Keyrock uses an internally developed algorithmic trading robot and high-frequency trading infrastructure and industry expertise to provide marketing and liquidity for the crypto ecosystem.

In addition to integrating with the main crypto asset trading platform to provide liquidity, the company also provides transparent data to its customers, allowing them to understand the operations and overall health of their markets, certificates, etc.

Keyrock also provides development consulting and market support for landing trading platforms and tailoring based on customer requirements. Data from the company's monitoring system can tell the customer's API and the performance of the encryption market. In addition, customers can build and publish scalable policies using the company's modular technology.

● Wintermute Trading

Wintermute Trading aims to create a mobile market for IC*0, which is currently connected to more than 100 crypto asset trading platforms and has established stable relationships with major trading platforms. For IC*0, ITO or STO, the issuing issuer is able to use the company's services to create liquidity for its IC*0 public offering. Before developing a viable strategy based on project definitions and customized liquidity parameters, the company works with the issuer to first understand their goals and requirements, and can also help the issuer to list on the appropriate trading platform.

Project parties that have been trading on the platform can integrate Wintermute to support the liquidity of their projects or to facilitate their secondary transactions. The company can also assist projects that have been on EX to restore liquidity losses, thereby avoiding the project being removed from the trading platform.

The market maker's overall cost model is performance-based, which means customers pay only when they reach their goals. In addition to creating custom trading strategies, the team system technology can also monitor customer transactions across all major platforms.

● Hummingbot

Hummingbot mainly automates the trading of encrypted assets by running high-frequency market-making robots. Since the project as a whole is open source, the service is relatively free and auditable, and is currently integrated with decentralized trading platforms such as DDEX and Radar Relay, as well as a centralized trading platform (Binance) to provide market-making services and fluidity.

The integrated market-making robots operate automatically on different trading platforms, and through high-frequency trading and quotation, the price difference between the bid-ask spread and the market is misplaced to generate profits. Encrypted asset trading platforms can use this technology to create and maintain liquidity.

● Platinum

Platinum Securities provides liquidity and market-making solutions for STO, IEO and IC*0, assisting in the listing of the top ten trading platforms and obtaining liquidity and solid trading volume. For its customers, Platinum will ensure that the buy/sell spread is less than 1% and has an accurate and stable liquidity strategy. The company is currently providing support and consulting for more than 400 certifying projects.

The company also allows customers to directly monitor the funds used in marketing to remain transparent. Depending on the customer's needs or depending on the type of customer's service, the customer can receive monthly reports as well as a dedicated personal account manager.

● Scavenger Bot

Whether the BTC price falls or rises, Scavenger Bot trades Bitcoin on the encryption market to get spreads. It can be integrated as a trading robot with a personal trading account to earn the profit of the account owner based on the spread and can automatically close the sale or purchase order.

The platform launched a beta in September last year, and its robots did not have any upfront costs, but received 15% of all profits generated by the automated trading platform. The owner of the account invoices each week based on the daily profit that the robot earns for them.

● CyberX

Founded in 2016, CyberX was founded by senior executives from Wall Street Bank Goldman Sachs, UBS, Merrill Lynch, Citadel Fund, AQR, Blackrock, GSA, Baidu and Thomson Reuters. Its founder also co-founded, China's first crypto asset wallet company, which was later acquired by the OKEx encryption trading platform.

According to the company's website, the company is building a platform to provide “all-round financial services” to pass issuers, institutional investors/passenger funds, trading platforms and high-net-worth clients.

The services it provides include marketing to provide liquidity on the trading platform 24/7 at all market levels. The service will eventually support all major trading platforms, including futures trading platforms; it provides order depth and maintains buy/sell spreads; provides early warning mechanisms for informed traders, cross-triangular arbitrage, and monitors markets based on quantitative analysis to identify unusual trading behaviors .

It also provides passive and active asset management, arbitrage (cross arbitrage, cash and futures arbitrage, statistical arbitrage, cross-pass arbitrage and event-driven strategies).

CyberX's trading platform is designed for institutional clients with a focus on algorithmic trading intelligence, goal-maximizing profit, low latency, high reliability, account security, blockchain data analysis and multi-level encryption asset support. Its platform can be installed locally on the client's machine and network, or it can be directly connected to the trading platform, but the API will not disclose information to third parties.

The trading platform supports trading algorithms such as TWAP / VWAP and other advanced algorithms. Using this algorithm, in addition to preventing information leakage, users can hide transaction intent, reduce transaction costs, and minimize market impact. The platform also supports automated order fulfillment and provides 24/7 configurable parameters and metrics.

● Cypto Market Makers

While some market makers and liquidity providers primarily use automated trading, Crypto Market Makers uses manual and algorithmic trading strategies. The company is experienced in providing liquidity for each type and type of trading platform and pass, with a monthly rate of 10 BTC, of ​​which 75% is for actual orders. This ensures that any encryption and pass-through that the company provides for liquidity is actively trading and maintains high sales in the market for other benefits, such as being prioritized by other trading platforms and getting more publicity.

● B2C2

Founded in 2015 and headquartered in London, B2C2 serves brokers, trading platforms, banks and cryptographic asset funds around the world, including mainstream crypto asset trading pairs and fiat currency pairs on the market.

Therefore, it is based on 24/7/365, in the form of US Dollar, British Pound, Euro, Japanese Yen, Singapore Dollar, Australian Dollar, Canadian Dollar, Swiss Franc, etc. for Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Ripple and Ethereum classics provide mobility. It also provides instant execution and post-trade settlement, where customers can purchase and sell encrypted assets 24/7 through the company's API and web platform.

In addition, the company can offer prices, provide FIX connectivity, and plug-and-play connectivity that rivals the existing OTC market and offers multi-currency expertise.

By 2015, the company traded tens of billions of dollars through various encryption and local currencies, including the US dollar, euro, yen, Singapore dollar, Swiss franc, bitcoin, Ethereum, Litecoin, Ripple, Bitcoin cash, etc. . It also offers flexible transaction sizes ranging from small algorithmic transactions to multi-million dollar over-the-counter business services.

In addition, active market makers in the current market include Hashcash Consult, Genesis Trading, Bankex, Prycto, Cumberland, etc. Overall, due to the globalization of the current encryption market and the characteristics of decentralized transactions, both the trading platform and the project side still have huge demand for market makers in the short term; from a long-term perspective, current market makers The general strategy is not much different, and as the market matures and the Matthew effect of the mainstream trading platform, the long-term test is the team's understanding of the data and the efficiency of automated response.

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