Categories: Cryptocurrency

The Hunt for the Ultimate Solution to Crypto Liquidity Crisis

We now live in a time where cryptocurrencies need no formal introduction. They were developed with a vision to solve many major problems of our existing financial system, such as the lack of transparency and flexibility. For the first time ever, they gave users a sense of control and ownership over their financial assets. Cryptocurrencies, with the underlying blockchain technology, made it possible for users across the globe to store and trade digital assets without the need for any middlemen.

As a result, we witnessed the emergence of several exchanges and aggregators created with the sole purpose of trading digital assets. Yet, these exchanges today face liquidity challenges, creating roadblocks for mainstream adoption. 

Liquidity Crisis in the Crypto Marketplace

Liquidity is an important measure to gauge the performance of any market. It represents the ease and efficiency at which buyers and sellers in a market can exchange assets. Good liquidity is a state where buyers and sellers can seamlessly exchange digital assets and tokens. On the other hand, bad liquidity is a state where the exchange of tokens is hindered because buyers cannot identify sellers and vice versa. In a state of bad liquidity, there are usually additional costs like price slippage and high transaction fees. These additional costs deter users from trading cryptocurrencies which in turn contributes to the illiquidity of the market. This is a vicious cycle and since its early days, the crypto market has been dealing with this liquidity crisis. 

Cryptocurrencies are still in their early stages of development. Their newness combined with their high volatility and the segregation of liquidity across hundreds of crypto exchanges has created a particularly illiquid market. Crypto exchanges have sprung up everywhere, but each of them offers different trading pairs and hence different trading volumes. As a result, there is a significant difference in assets’ prices, slippage, and transaction fees on different exchanges. This dissuades new users and puts them off trading altogether, resulting in lower trading volumes. This liquidity crisis is the reason many promising crypto projects raise millions in their early stage but fail to perform well thereafter.

How Market Making Solves the Liquidity Crisis?

Imagine there is a buyer who wants to buy 51 ETH. It is extremely difficult to find a seller who wants to sell the exact same amount at the exact same price, especially when the amount is so high. This is where market makers come into the picture. Market makers are people always willing to buy and sell assets. By doing this, they provide liquidity to the market and smooth out the entire process of trading. In turn, the likelihood of the trade being executed increases, and additional costs like price slippage can be avoided.

That’s the reason market making is such a critical part of trading platforms. Without it, very few trades would actually even take place. Even in the crypto world, market making seems to be a viable solution to the prevalent liquidity crisis. This is why Flowdesk has come up with a next-generation market-making infrastructure that could solve the liquidity crisis in the crypto marketplace. 

Market Making on Flowdesk

Flowdesk is a trading and liquidity infrastructure built specifically for the digital asset ecosystem. The aim is to build a complete trade execution system on the globality of exchange platforms, promoting the interconnectivity of the ever so scattered centralized exchanges. Unlike other prevalent market makers, Flowdesk manages to cut down on costs associated with trading by creating its own market making infrastructure that has been developed with scalability and reliability in mind. 

Its infrastructure is capable of producing over two billion liquidity distributions per day to match even the smallest market movement and adapt to high volatility market conditions. It also monitors for potential risks several times per second and switches the trading operation to the safest possible and most affordable route.

Flowdesk’s exchange pool combines 40+ platforms and liquidity providers, allowing for seamless liquidity access and ensuring global market coverage. Additionally, Flowdesk’s custom infrastructure is aggregating and harmonizing the globality of available market data, enabling the production of rich market insight reports and analysis of the state of the market. 

One of the main concerns of Flowdesk is to bring trust to the ecosystem. As such, they are based in France — where the regulatory framework is one of the strictest in the world —  to ensure the company operates with reduced risk for their clients and provides a trusted gateway between traditional and crypto finance.

“By having a complete technological and operational setup, we offer plug-and-play crypto financial services to our clients with the highest level of security and regulatory compliance, which we believe, will be more and more important as the crypto-space becomes institutionalized,” says Guilhem Chaumont, the CEO of Flowdesk. 

Conclusion 

Cryptocurrencies have the potential to not only challenge but also fully replace our traditional financial systems. But, the problems of liquidity, high transactional costs, and price slippage are a huge roadblock for mainstream crypto adoption. By creating a comprehensive infrastructure that can solve all these problems, Flowdesk makes the digital ecosystem more reliable and trustworthy and pushes for widespread adoption of digital assets.

Angela Scott-Briggs

Editor, TechBullion.com | Interested in Innovations in Business, Finance, and Technology .

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Angela Scott-Briggs

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