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Jul 29, 2020

Cointelegraph: How does the digital asset exchange meet the needs of institutional investors

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The global instant settlement network using blockchain as a solution is attracting institutional traders.

Due to the low barriers to entry, competition in digital asset exchanges is fierce. According to incomplete statistics, there are currently more than 10,000 exchanges in operation worldwide. Intense competition not only reduces the profits of all exchanges but also lowers the threshold for deposits and withdrawals. Coupled with the chaos and imperfections of the global regulatory system, the profitability of digital asset exchanges is facing huge challenges.

Digital asset exchanges must overcome these obstacles to attract institutional traders who will lead the next wave of growth in the industry. These capable traders are looking for cryptocurrency exchanges that not only provide the liquidity they need but also have advantages in fast deposits and withdrawals and transfers. Equally important, the ability to provide instant settlement will enable them to conduct more transactions with fewer funds. This new direction can bring the growing industry players closer together.

The danger of market fragmentation

Many exchanges are operating around the world, and the resulting market fragmentation has had a wide-ranging impact on digital asset trading. Due to differences in local regulations, crypto exchanges must first be paired with local fiat currencies before they can trade, which makes them a trading island with a lack of liquidity. No trading platform accounts for more than 5% of the spot trading volume. This limited liquidity leads to different prices in different regions and exchanges.

Even so, this market fragmentation creates market opportunities for traders. Smart traders will execute cross-exchange arbitrage transactions, obtain organic liquidity from other regions, or need to rely on untapped global liquidity to provide more reliable signals to execute strategies. However, there are also big obstacles in the implementation process. If institutional traders want to fully realize these opportunities, they need the ability to transfer funds across exchanges in real-time, global settlements in real-time, and reallocate funds across exchanges in real-time.

The new network that can quickly transfer value

Institutional traders will lead to the adoption of the next wave of digital asset trading. A recent survey conducted by Fidelity Digital Assets showed that among the approximately 800 institutional investors surveyed, nearly 80% expressed interest in the field of digital assets. Exchanges that can quickly adapt to their needs will have a greater opportunity to attract and retain these valuable traders-this This can bring up to 200% growth in the industry’s trading volume, which is tantamount to an evolution of the industry.

Ideally, a unified solution can help crypto exchanges significantly improve the performance that institutional traders focus on. At present, traders must adopt costly solutions, such as holding accounts on multiple exchanges and decentralizing transactions among exchanges. This inefficient arrangement has also led to low capital utilization. What they need is to be able to realize faster deposits, withdrawals, and cross-exchange transfers, so as to transfer valuable capital from off-exchange to on-exchange, and execute more profitable trading opportunities.

Unsurprisingly, for cryptocurrency exchanges, the answer lies in the application of new blockchain technology. The instant global settlement solution will solve the problem of slow withdrawals, deposits, and transfers. This new type of network can truly provide real-time global clearing and settlement covering most asset classes for digital asset trading platforms, banks, and traditional trading institutions. Participants in this new ecosystem will enjoy safe, reliable, and convenient real-time settlement of digital assets and payments.

Exchanges that access the global instant settlement network will gain more advantages, thereby attracting institutional investors and traders to choose their platforms. In general, the new network allows institutions to access a more unified global market, and access to the network enables exchanges to provide instant deposits and withdrawals, enabling institutional clients to quickly transfer funds between exchanges, while increasing the utilization of funds.

The increase in settlement speed makes it possible to implement cross-exchange strategies. For example, a trader can buy 9,000 USD worth of Bitcoin (BTC) on one exchange and then immediately sell it on another exchange worth 9,150 USD, avoiding potential price fluctuations that may occur while waiting for settlement. The risks come. Because the settlement time may take 20 minutes to more than 60 minutes. This method also includes advantages such as reducing settlement costs and increasing profit margins.

Win-win situation

Better pricing and liquidity are the keys to trading, but these are not the only factors that institutional traders consider. Ease of use, cost, and settlement time are also important factors for traders to choose a trading venue. For traders, when choosing a trading venue, the flow of funds, and the speed of capital turnover are also very important. When all these processes are carried out in a unified network, seamless movement and redemption will become easier.

With the development of the global instant settlement network, a greater win-win situation will emerge. The network effect increases the value and unifies the previously dispersed exchange structure. The income of each exchange will increase with the increase in the number of institutions. Under such circumstances, the global instant settlement network model is not only a differentiating factor for exchanges but also a necessary step for institutional traders to implement global trading strategies.

About the Author:

Haohan is the CEO of Apifiny. Apifiny is global liquidity and financial value transfer network. Before joining Apifiny, Haohan was an active investor in the stock market and a trader in the digital asset market. Haohan holds a bachelor’s degree in operations research from Columbia University with a minor in computer science.

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