It is no secret that comprehending the complexity of the Bitcoin market is difficult. Despite a large amount of material accessible, it may be challenging to locate literature that provides a detailed and thorough description of crypto exchanges, the trading system, the multiple variables affecting coin values, and so on. The purpose of this article is to give users the material that will assist them in understanding how aggregated liquidity influences the crypto market. Let’s get more into crypto liquidity aggregation, together with its role, benefits, and the top platforms that offer it.
What is Liquidity Aggregation?
Simply said, liquidity aggregation is the process of pooling liquidity from many sources into a unified pool. Such a pool will then be utilized to perform transactions at lower costs than if every provider was used separately.
Worth mentioning is that liquidity aggregation does not represent a unique method in a typical financial system. For instance, stock exchanges utilize pooled liquidity to give clients better pricing and faster transaction execution. The same logic applies to crypto trading.
How Does It Work in Practice?
Assume you plan to purchase 1 BTC on the market at the top bid price, which is $19,700, and the best ask price is currently $19,800. If you execute a purchase order at the best and most reliable bid price, it will most certainly take a while to complete because liquidity is strictly tight at that value.
Suppose you wish to purchase 1 BTC on the open market. Currently, the top offer price is $19,800, while the best bid price is $19,700. Given the limited liquidity at that value, should you execute a purchase order at the optimal bid price currently, it will most likely take some time to complete.
The ensuing bid and ask prices, if we were to aggregate the liquidity from all three exchanges, would be $19,650 and $19,750. The price of $19,700 would be used to fulfill our request to purchase 1 BTC, which is more than the highest bid price on any of the individual exchanges.
A combined liquidity pool would also give us access to significantly more liquidity on a much greater scale. This would improve our likelihood of receiving our purchase rapidly and affordably.
What Are the Benefits of Aggregated Liquidity?
Employing pooled liquidity in crypto has several advantages, such as:
– Better prices: It is possible to obtain way better prices by pooling the crypto liquidity from many exchanges than you could do so if you traded on just one exchange individually.
-Higher trade execution: Your transactions will be completed more rapidly thanks to a broader liquidity pool.
– Increased market coverage: It is a widely known fact that only a specific amount of coins or tokens may be listed on some exchanges. You may trade a wider variety of assets utilizing an aggregated liquidity pool than you could on a single exchange.
– More reliable order book: Several markets may experience limited liquidity or unexpected market fluctuations. You may trade in a more steady and dependable market by employing an aggregated liquidity pool.
What are the Risks of Aggregated Liquidity?
The risks of using aggregated liquidity are described below:
Counterparty risk
You must be aware that you are putting your faith in exchange when you place an order there, believing that it will fulfill its obligations to you. If an exchange does fail, your funds cannot be refunded. Moreover, when you use it, you put your faith in the non-default of every exchange in the aggregated liquidity pool. This implies that using an aggregated liquidity pool increases your liability exposure.
– Slippage: You may not constantly obtain the precise price you want when submitting an exchange transaction. This is due to the possibility that the order won’t be filled immediately or that the market may change before it is completed. Your offer could be executed from several exchanges at once when using an aggregated liquidity pool. This indicates that, compared to trading on a single exchange, you are most likely to experience higher slippage.
– Latency: There are moments when there is a lag between the first you make an order on an exchange and when it is ultimately fulfilled. Such latency results from the time it takes for the order to travel through the system and get to the exchange databases. Your request may be transmitted equally across many exchanges if you use an aggregated liquidity pool. As a result, your chances of experiencing more delay than trading on a single exchange alone will be higher.
– Fees: The exchange usually charges a fee whenever you trade on their platform. You can also be forced to pay the pool provider a charge if you use an aggregated liquidity pool. These costs might mount up and cut your earnings.
Despite these concerns, aggregated liquidity can be a great approach to achieving better pricing and faster transaction implementation rates. Aggregated liquidity may be used to your benefit if you pick a reliable source cautiously and are aware of the dangers.
Selecting the Best Crypto Liquidity Aggregator
To use pooled liquidity, start by locating a dependable source. When picking a provider, there are a few aspects to consider, such:
Reputation: It is vital to choose a service provider with a positive reputation in the market. Seeking relevant information and speaking with other traders might help you find answers to your questions.
Security: Choose a service provider who prioritizes safety, which should be a priority for both sides due to the increased probability of cyber attacks. Data encryption and two-factor authentication are examples of this.
Support: Seek a service provider that provides excellent customer service. By doing so, you can ask for assistance if you encounter any service-related issues.
Fees: Consider a service provider that has fair prices. By doing this, you can prevent losing money on every deal.
You may create an account and begin utilizing the service as soon as you have identified a dependable supplier.
One outstanding liquidity aggregator cryptocurrency that meets all these criteria and more is MarksMan from B2Broker.
The MarksMan Liquidity Hub enables commercial, corporate, and cryptocurrency exchanges to offer their clients the greatest possible trading environment. The platform provides a variety of services, such as access to multiple financial markets, spot liquidity for digital goods, as well as other trading tools. Top-of-book and full-market depth pricing, as well as straightforward yet effective tools for price formulation and risk hedging, are all offered by MarksMan. Additionally, top-of-book and comprehensive depth prices are both included in MarksMan.
Among the distinctive qualities that set MarksMan apart are:
- Advanced order types
- Aggregation of multiple exchanges
- Fast and reliable execution
- Low latency
- Flexible API
- Risk Hedging
- Comprehensive Reporting
- Dedicated Support Team
For individuals that want crypto liquidity solutions and wish to benefit from pooled liquidity, MarksMan is an ideal investment. The platform provides all of the advantages and features you would anticipate from a top-tier supplier. Additionally, MarksMan is supported by a group of committed experts who are always accessible to assist you with any issues you might be experiencing.
Final Thoughts
A fantastic technique to achieve better pricing and quicker transaction execution is through liquidity aggregation. Always remember that it is crucial to pick a reliable service and be aware of the risks involved. You may benefit from pooled liquidity with the proper supplier. The cryptocurrency market has a promising future, and liquidity aggregation will undoubtedly be a key element in encouraging acceptance and development.
