What is the key to making crypto trading global?
Despite the recent hype surrounding the Bitcoin bull run and the cryptocurrency market in general, the actual state of the global crypto trading market is still in its infancy. Professional cryptocurrency traders cannot efficiently conduct global price discovery, access to the best global bid and ask prices, or global liquidity.
The reason for this is very simple: a highly fragmented market. At present, no exchange can provide a unified global trading market and truly global services: each exchange is now like an "inland lake" with no "canal" to connect with each other.
Solving this problem is not an easy task, otherwise the crypto trading market would not be still in its infancy. Apifiny CEO Haohan believes that the development of a two-way liquidity market is a key step in solving the dilemma of professional crypto traders and establishing a unified global trading market. It is reported that Apifiny, a digital asset trading network, is currently developing such a two-way market.
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The value of two-way markets
Two-way marketplaces are not new: Two-way marketplaces are a proven way to bring together otherwise unconnected buyers and sellers, creating new revenue streams for sellers and new capabilities for buyers.
Google's advertising service, AdSense, is a good example of how a two-way market creates a new source of value for small advertisers (buyers) and website publishers (sellers), and facilitates the accelerated growth of a new business. Google AdSense, which generated $146.92 billion in ad revenue in 2020, has helped drive new demand for ad inventory by making ad space available to a large number of small advertisers (more than 38.3 million sites so far in 2021). AdSense makes it easy to sell ad space, allowing websites of all sizes to monetize their audiences. This phenomenal business would not exist without a two-way market.
Liquidity is notEnough to keep institutional traders on the sidelines
Despite the growing demand for global liquidity from exchanges, asset issuers, and quantitative traders, the lack of global liquidity supply limits the development of digital asset trading. It is worth repeating: today's digital asset trading market is highly fragmented and lacks a unified global market. Institutional traders can only trade in local markets, without access to deep, global liquidity and the best asset prices. What causes this?
Today's exchanges operate in silos and in isolation from each other. In order to obtain sufficient liquidity, traders must use different APIs to connect to multiple exchanges, and the reliability of these exchanges varies greatly, requiring high development and maintenance costs. In addition, for professional traders, if there are not enough distributed IDCs to connect exchanges around the world, the transaction speed is too slow.
Traders also need to deposit large positions, but moving positions between exchanges is slow and expensive. In addition to this, high withdrawal and transfer fees also force many traders to deposit funds on centralized exchanges, which poses a huge security risk.
All of this has resulted in today's international trading system being illiquid, complex, slow and expensive.
Key advantages of a two-way liquidity market
A "two-way liquidity marketplace" could address these challenges by connecting the world's exchanges with new, untapped sources of liquidity. Just as advertisers can easily buy ad space, the two-way liquidity market can make it easy for exchanges and token issuers to buy liquidity from dozens of new market makers that can automatically sell liquidity. Market makers are financial institutions that buy and sell assets on exchanges and other trading platforms. Market makers make profits by maximizing the bid-ask spread (the difference between buy and sell orders).
In theory, a two-way trading market would enable mid-sized market makers around the world to provide enough liquidity to catalyze the next wave of trading growth. This will also lay the foundation for the globalization of crypto trading, seamlessly connecting exchanges, market makers, professional traders and OTC platforms into a unified global marketplace.
A two-way liquidity platform will make access more democratic, benefiting all participants. Smaller market makers are not subject to capital or volume requirements. Even without accumulating trading volume, the fee rate will be much lower than before, which means that at any time, market makers can enjoy the lowest rate.
Exchanges will benefit from new liquidity provided by tens of thousands of new market makers for a large number of assets, which in turn enables professional traders to benefit from better price discovery, tighter spreads, higher fill rates and capital utilization rate, and faster transaction execution. Faster execution speeds will also help exchanges attract more professional traders, creating a virtuous circle of market growth.
new market maker
This two-way liquidity market can also allow more professional traders to become market makers, automatically connecting them to exchanges or trading pairs that need liquidity. Expanding the scope of market makers to new counterparties will further boost the growth of the trading market.
Such a marketplace could also empower exchanges and asset issuers to list their own market-making opportunities and corresponding market-making rewards. Professional traders can place funds into a market-making account, allocate them to participating digital asset exchanges, and choose their preferred trading pair (such as BTC/USD).
The concept of "turning traders into market makers" may sound far-fetched, but it's as far-fetched as retail bank savings accounts power business loans. A well-designed two-way market, with the right technology and enough connected exchanges, will be very feasible, and global liquidity and the entire crypto trading ecosystem will thus take a big step forward.
