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Can a liquidity marketplace advance the crypto industry?

Can a liquidity marketplace advance the crypto industry?

Two-sided marketplaces are greater than a sensible enterprise mannequin. These platforms can democratize entry and promote widespread financial inclusion in beforehand inaccessible markets. They’ve labored wonders in myriad verticals already — e.g., inventory exchanges — and the world of digital asset liquidity might now be fertile floor for this enterprise mannequin.

Profitable new platforms convey collectively consumers and sellers who would in any other case be unable to attach, creating totally new worth streams for sellers who seize extra income. In the meantime, consumers acquire entry to new capabilities, making a win-win for everybody concerned. A CoreSight analysis indicated that income of two-sided markets equivalent to Airbnb, Fiverr, eBay and Uber may exceed $40 billion by 2022.

Google’s AdSense is a superb instance of how a two-sided market can create a wholly new supply of worth for consumers and sellers. Its resolution benefiting each publishers and advertisers has helped speed up the expansion of a brand new enterprise class and constructed an industry-leading enterprise. The Google Adverts promoting service collected $134.eight billion in 2019 (together with AdSense in addition to Google’s different promoting merchandise). Over 11 million web sites have grow to be AdSense customers (sellers). Google has generated new sources of demand for promoting stock on high-traffic web sites by making advert house accessible to legions of smaller advertisers (consumers), resulting in increased bids, extra adverts and better advert gross sales.

AdSense made it doable for web sites of all sizes to monetize their audiences by simply promoting advert house. On high of that, AdWords helped small companies needing a straightforward technique to promote to achieve quick entry to a beforehand inaccessible world. What had as soon as required a crew of media consumers and massive budgets for TV, radio or print promotion was immediately achievable through a couple of clicks and reasonably priced pricing.

Crypto’s sudden challenges

The creators of cryptocurrencies equivalent to Bitcoin (BTC) based their creations largely on a philosophy of economic empowerment. Bitcoin’s genesis as a peer-to-peer digital money system was designed to allow shoppers to pay one another immediately, precisely and securely through a blockchain’s immutable audit path.

Bitcoin’s creator, Satoshi Nakamoto, most likely didn’t foresee that in just a little greater than a decade, Bitcoin would obtain over a $200-billion market cap. Satoshi most likely additionally wouldn’t have predicted the looks of numerous new cryptocurrencies, which have been accompanied by a whole lot of digital asset exchanges worldwide the place buyers may commerce digital property.

As new exchanges have sprouted up across the globe — every inbuilt a disconnected silo — market fragmentation has elevated exponentially. Satirically, this market fragmentation has prevented liquidity aggregation whilst the general market capitalization has grown. Because of this, exchanges at present face deep challenges in guaranteeing value/time precedence of orders, cheap spreads and transaction pace. This liquidity bottleneck is a drag on digital asset buying and selling development.


Markets should essentially mature and attain essential mass earlier than a two-sided platform can arrive on the scene. Crypto buying and selling at present has arrived at this juncture: With extra exchanges and extra merchants, the demand for liquidity has continued to develop.

I imagine {that a} two-sided market-making platform would be the resolution to this drawback. Crypto exchanges depend upon market makers to commit to purchasing and promoting at pre-chosen costs. These orders add liquidity to the alternate, benefiting an alternate’s shoppers. In the meantime, the liquidity suppliers (aka market makers) should have the means to commit the required buying and selling quantity and capital. Their reward will be excessive, as market makers have the chance to seize the distinction, or the unfold, between their lower-priced purchase and higher-priced promote orders.

Market makers not solely require capital but additionally want know-how and buying and selling experience to tell automated buying and selling algorithms. Whereas market making may doubtlessly be a gorgeous use of capital for smaller gamers, they’re shut out as a result of they both lack the capital, buying and selling quantity, or experience to take part.

Similar to AdSense, a two-sided market-making market platform would allow merchants, large and small, to commit digital property to particular exchanges and buying and selling pairs (like publishers within the AdSense mannequin dedicating advert stock). In the meantime, exchanges “bid” on this buying and selling quantity with charges paid to market makers (like advertisers in Adsense). Whereas market making has historically been the area of full-time, well-capitalized skilled merchants, an AdSense-like two-sided market can increase that area to incorporate expert merchants of just about all sizes and styles.

Market maker metamorphosis

What if a platform may allow savvy retail buyers to function crypto market makers by connecting them with digital asset exchanges and/or asset pairs that want extra liquidity? A well-designed two-sided platform can empower retail buyers to diversify and take part in an important market operate beforehand unavailable to them.

Sooner or later, a two-sided platform may allow exchanges and asset issuers to record their market-making alternatives on the platform, together with the corresponding maker rewards. Retail buyers may place funds right into a market-making account, allocate it to a collaborating digital asset alternate, and choose their most well-liked buying and selling pairs, equivalent to BTC/USD.

As every alternate’s liquidity will increase, their shoppers will get pleasure from higher value discovery, commerce execution and better fill charges. Higher execution might even assist exchanges entice extra institutional buyers, making a virtuous cycle of market development.

Turning an investor or a dealer right into a market maker might appear to be a tall order, however a well-designed, two-sided market makes it fairly possible. It isn’t far-fetched to counsel that such an environment friendly platform can spark one big leap ahead for the digital asset ecosystem.

The views, ideas and opinions expressed listed here are the writer’s alone and don’t essentially replicate or characterize the views and opinions of Cointelegraph.

Josh Li is the chief enterprise officer of Apifiny — a fintech and DeFi startup constructing a brand new web of economic companies. Previous to Apifiny, Josh was an govt at Google the place he led strategic partnership and innovation groups in each North America and APAC. He holds a BA diploma from Harvard College in East Asian Research and an MBA in Advertising and marketing from the Anderson Faculty of Administration at UCLA.

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