For anyone in technology, a breakdown of services caused by a power cut, an Internet outage or a disruption to system workflow can prove to be very challenging and potentially very costly.
For a digital asset exchange, guarding against such instances is critical, particularly when orders are time and price sensitive and can mean the difference between a profit or loss.
When a brief outage took place recently at a major exchange, it was a reminder of how vulnerable investors can be to even a temporary disruption of service. In this case, it was the high volume of traffic that was the cause of the disruption and the incident demonstrated once again just how important system resiliency is during periods of stress.
Performance is key, and many exchanges have taken measures to ensure they are backed by tried and tested technology solutions that can withstand spikes in activity or deliver ultra-low levels of latency demanded by investors.
But it is not just technology that needs to be resilient. Other processes, such as client onboarding and ‘Know Your Client’ (KYC) compliance standards; custody solutions for keeping safe digital assets; settlement systems; adherence to the new ‘travel rule’ proposal of maintaining an audit trail of buyers and sellers; also all need to be bulletproof.
It’s not just about making sure that everything runs smoothly, but flawless processes build reliability and loyalty.
The good news is that across the cryptocurrency and digital assets industry, significant steps are being taken to address these challenges.
- For example, Bakkt, a digital asset exchange that has investment from, among others, the Intercontinental Exchange (ICE), owner of the New York Stock Exchange, is adopting its futures exchange and clearing infrastructure so that investors undergo the same Anti-Money Laundering/KYC reviews, that are consistent with regulated markets and connect to Bakkt via ICE’s existing compliance infrastructure.
- Similarly, ErisX, another digital asset exchange who counts NASDAQ as one of its investors, operates a hardware matching engine stationed in an Equinix data center in New Jersey – the same facility which houses the matching engines of major traditional exchanges – so that it can provide co-location services, to tackle latency issues.
- Likewise, AAX selected the Millennium Exchange matching engine, which also powers the London Stock Exchange, and other first-tier financial markets, precisely for its ability to handle large and fast order volumes, securely and safely, using a technology already well-known to institutional investors.
Price integrity and risk management
But apart from ensuring resiliency in both online and offline processes, it is equally crucial that exchanges can guarantee accurate price data, in real-time.
The incident showed how vulnerable systems can be, and how a breakdown can result in sometimes oversized reactions.
Trust and transparency
As indicated above, ensuring that you have strong and robust processes is not simply about avoiding systems failure, it is also about building trust and driving up customer satisfaction.
Outages are not exclusive to digital asset exchanges. But perhaps due to the industry’s previous experiences with hacks and scams, crypto traders get particularly anxious when their venue goes dark.
And as the industry enters into the mainstream, transparency and trust are the difference between success and failure.
The goal now is for digital asset exchanges to keep raising their standards. Not just in terms of performance and capacity, but also in taking a proactive approach towards compliance and integrity.
Ultimately, we need to get to a point where investors retain their sense of trust – even if the lights temporarily go out.