The data center versus cloud debate has been going on for some time now and raises an important question about what is actually required of exchanges in an emerging market.
Currently, the debate focuses almost exclusively on performance – a critical component as institutional investors become more active in crypto and high-frequency trading becomes more prevalent. These are important considerations, but not the only ones, and here at AAX we found that using a cloud computing platform – in our case from Amazon Web Services (AWS) – best suited our needs.
The push for performance
With increased institutional interest in digital assets, a new breed of crypto exchanges is on the rise. These exchanges are built in anticipation of not only exponential market growth, but also increased regulation.
Needless to say, the prospect of larger capital inflow bodes well for those already invested in this space, but it’s also vital for the further development of blockchain technology in general, as many coins still power underlying blockchain networks.
Exchanges are critical to providing fair, reliable, and secure trading venues, with mechanisms in place to ensure price discovery, of assets like bitcoin and they serve as channels through which capital can flow to the most promising blockchain ventures and tokens.
Pushing for performance is therefore vital. Digital asset exchanges need to be able to handle large order volumes and deep liquidity, execute orders with the least possible latency, and they need to be resilient.
This is not surprising: why would investors, who are used to trading on markets like the New York Stock Exchange, settle for anything less?
This is the reason why AAX chose MillenniumIT’s Millennium Exchange matching engine. Developed by LSEG Technology, this is the same matching engine that powers traditional financial markets, including the London Stock Exchange, Johannesburg Stock Exchange, and the Oslo Stock Exchange. It is proven, trusted and solid with years of almost flawless performance behind it.
The case for the cloud
At AAX, we decided to host our matching engine on the cloud. This is what the debate revolves around. There are many good arguments why operating a crypto exchange at a data center is the best option for optimized performance and thus meet the demands of institutional investors. But we find that the cloud brings with it a versatility that can be missing in a data center.
Customization & scalability
Many say that the benefit of a data center is that it allows exchange operators to completely customize one’s technological infrastructure. However, in an industry where regulation is emerging, but still nascent, and new configurations are likely to meet new requests and demands, operators that have their exchange hosted on the cloud can adapt quickly through an extensive selection of products in storage, security, content delivery, developer tools, server options to meet a host of possible outcomes.
The key difference with a data center is that setting up an infrastructure on the cloud is simply faster – it can be done in a day, rather than spending months of making alterations and system changes in a data center. Simply put, to change a setup, exchange operators just log in and click to activate, rather than having to ship and install new equipment.
Latency & capacity
Latency is also extremely low on the cloud. At AAX, latencies as low as 90 microseconds, with a median of 250 microseconds and a 99 percentile at 839 microseconds, have been recorded. This means we’re able to offer a trading experience on a par with traditional financial markets. Indeed, depending on where clients are based such numbers can be brought down even more, due to the capacity of our matching engine.
Similar to data centers that offer colocation, cloud services offer ‘Placement Groups’, where clients can potentially place their servers in close proximity to ours.
Flexibility & adaptability
As important as performance is, so is the confidence that comes with knowing that you’re trading on a trusted, regulated market.
As a Digital Investments survey recently revealed, one of the major obstacles keeping more institutional investors from entering the market is ‘unclear regulation’. And seeing as today’s regulatory environment is still uncertain and fragmented across jurisdictions, it is vital that crypto exchanges keep abreast of developments in this space and maximize their ability to adapt.
With AWS, the ability to take advantage of ‘Availability Zones’ in 22 different geographic regions, means that servers can be regularly and easily accessed and inspected by any regulatory authority.
If a given jurisdiction required data servers to be located domestically, or suddenly opened its doors wide to crypto – or even in the event of a natural disaster – moving operations to different Availability Zones is done remotely in the span of hours – unlike data centers where the process of moving to another location can take weeks or even months.
There are pros and cons to everything, data centers and cloud computing platforms included. But the differences between them include a variety of factors unique to this moment in an emerging market.
Performance is key to creating an institutional-grade venue, and both data centers and cloud platforms are capable of meeting institutional standards and offering some variant of colocation. Resilience is important as well, and both types of facilities usually have mechanisms in place in the event of local disruptions.
But in a fast-growing industry, where clear regulatory frameworks are only just emerging, flexibility and adaptability are likewise vital. And for now, at this point in time, this is where cloud computing platforms confer the greatest advantage.