Liquidity is an extremely important parameter in any market. If it is high, it means that buy and sell transactions are performed frequently, and the difference between the maximum buy price and the minimum sell price - the spread - is small. For ordinary users, this is most beneficial, since it allows you to quickly carry out transactions at a price that is as close to the market as possible.
However, maintaining high liquidity in our time is not a trivial task. There are too many participants, too many transactions and processes, and in markets with high volatility, the same cryptocurrencies, also the influence of random factors is too strong. The larger the market, the higher the competition and the chance to get a lucrative offer, but the more difficult it is to work on it. And in order to somehow optimize this business, special tools were invented - liquidity aggregators. At first, they were successfully tested in the stock markets, and now the turn of cryptocurrencies has gradually come.
What are liquidity aggregators?
In short, it is a separate program or software that collects market orders into one stream and sends them to liquidity providers, where a comparison takes place, and if the bid and ask prices match, the transaction is satisfied. At the same time, applications are collected from different platforms, so that users have a better chance of finding a suitable option for themselves - the minimum spread.
There are two main methods of operation: ECN and MTF.
ECN - Electronic Communications Network. The principle is as follows. Pool of orders - The Depth of Market is formed by liquidity providers, market makers, and traders using market and limit orders. When a new limit order arrives (buy/sell at a specified price or better), the aggregator looks for the requested price. If it finds it, it sends it to the liquidity provider for confirmation. If not, he puts it in a glass. If we are talking about a market order, the aggregator compares the limit orders with it and finds the closest ones, and then sends the order to the author for confirmation. If there is confirmation, the deal is closed. In any case, you need to wait for confirmation from the other side. By working with a wide variety of providers, ECN services offer lower spreads and better terms.
MTF - Multilateral Trading Facility. The order book is formed by liquidity providers and traders with limit orders. When a new order arrives, it is matched against those that already exist. And if there is a match, then the transaction is instantly executed and confirmation is sent to both parties. Otherwise, it goes into the glass. The main difference from ECN is that the very fact of a match is sufficient to conclude a deal - no additional confirmation is needed. This significantly speeds up the process and reduces the chance of slippage.
Why is this needed?
For example, in order not to manually search for the most favorable prices. Alas, taking into account the current scale of trading, a person simply will not keep up with the automation of submitting orders for more profitable deals. In addition, aggregators are needed in order to involve large liquidity providers in the process, which will provide real orders for both buy and sell. Conventional brokers do much worse at this. Also, the work of aggregators allows you to keep the asset price as close to the market as possible. And collecting data from different platforms and exchanges creates conditions for normal competition and prevents market monopolization.
It is also worth considering that there are multi-tier services. Which, for example, at one level collect orders from clients of one brokerage company, and at a higher level, look for correspondences with them in the liquidity aggregators of other organizations.
Simply put, without such projects, it is extremely difficult to search for the best deals on more than one service.
Existing projects
Despite the high efficiency and effectiveness, there are not many liquidity aggregators for cryptocurrencies. For a long time to come, they cannot be compared with Forex and stock exchanges. The following services are of particular interest:
- B2BX. Uses B2B tokens of the ERC-20 standard. It has a unified integration mechanism with third-party services, cooperates with aggregators from other ecosystems - ENC integral, PrimeXM, OneZero. It works not only with crypto, but also with securities - what exactly to work with, each user can customize for himself.
- Matcha. A platform that collects liquidity from various decentralized exchanges. Cooperation with decentralized projects makes it unique in its own way. Collaborates with exchanges such as 0x Mesh, Uniswap, Curve, Oasis and other sources. It has an intuitive interface.
- Paraswap. One of the fastest projects optimized for traders and dApps. Compatible with ERC-20. Works with various exchanges and services - Bancor, Kyber, 0x, Uniswap, Curve and others.
Conclusions
The cryptocurrency market is still far from the optimal organization, so in the near future we can expect the emergence of new liquidity aggregators in different directions. And as the market expands further and large players appear on it, the need for this will only increase.