The Crypto Liquidity Crisis Isn’t Abstract | Hacker Noon

Liquidity in the crypto market is such a big challenge for every trading platform. The better liquidity provider, the more clients will be happy to trade with low spreads and affordable slippages. Lack of liquidity can trigger many problems for all market participants. The main challenge for any trading company is to provide a consistent and stable level of liquidity to prevent negative effects.

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Viktor Kochetov Hacker Noon profile picture

@viktorkochetovViktor Kochetov

СEO Kyrrex.
The knowledge in traditional markets is accompanied by crypto experience.

What’s Crypto Liquidity?

Liquidity is the market possibility to exchange currencies or other financial instruments between their participants: buyers and sellers.

Well-worked liquidity allows almost immediately to proceed with an exchange between users. As soon as a platform experiences liquidity issues, tokens can be stuck because of the lack of them on the one side, or there could be problems with identification.

The liquidity goals are to help us with avoiding high slippages, spreads, and extra fees. Many little trading platforms with a small operational trading turnover and a liquidity shortage are at risk of a lack of interest from traders and investors.

Why Does This Matter?

High liquidity allows the market to be stable and run without price spikes. Market liquidity is a possibility to convert one coin into another as quickly as possible with a low handicap.

On the other side, low liquidity can trigger high slippage. It’s a negative effect that affects a price when you open or close an order.

Slippage is a difference between the executing and expecting prices. The periods of high volatility, when big volumes are traded, can trigger a significant slippage period. When liquidity is high, traders can use technical analysis to find out some fresh trading ideas.

What Challenges do Services Face Because of the Lack of
Liquidity?

Liquidity is one of the most crucial factors to keep your traders working on your platform.

The main challenge for any trading company is to provide a consistent and stable level of liquidity to prevent negative effects. There are several ways. Some firms try to design their own liquidity pool, and it takes months or even years.

Shaping the software after releasing will take half a year more. The solution is to join an already-worked and well-designed liquidity pool and immediately get conditions your traders look for.

The next stop point is commissions and the level of integration that liquidity service can provide you. We’re going to explain to you how it works on a specific example.

Liquidity Solutions

A liquidity crisis can be solved by providing a partners’ exchange order book with sufficient liquidity and ensure the implementation of all their exchange transactions using the liquidity hub.

Herewith, the speed of processing applications is really high and reaches 1.5M transactions per minute for each trading instrument. But the main benefit is that users minimize the network commission costs by using a netting form of interaction between participants, subscribers, and to earn more.

● One can use a consolidated order book where the volume of large
partner platforms is consolidated;

● Any member of the system gets the opportunity to use
consolidated liquidity without additional limits and restrictions;

● Free and unbound liquidity is implemented using external
resources;

● When simulating the clearing algorithm taking into account
the programmed discrete-time parameter, the possibility of additional savings of financial resources is realized by reducing the cost of transaction fees.

Being the Kyrrex CEO I decided to clarify the issue that has been discussed many times on the web – crypto liquidity. Liquidity in the crypto market is such a big challenge for every trading platform. The better liquidity provider, the more clients will be happy to trade with low spreads and affordable slippages. Lack of liquidity can trigger many problems for all market participants.

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