Order book depth, a tight spread, and minimum slippage. Indeed , liquidity is regarded as the holy grail for any exchange. A liquid order book attracts more traders and in turn, more liquidity.
Of course, there are many more aspects that matter.
From an institutional point of view, investors look at the entire market infrastructure in terms of technological resilience, transparency, speed, security and compliance. Furthermore, all traders in crypto care about fiat on and off ramps.
Throughout 2019, great strides have been made in this regard. A range of stablecoins alternatives pegged to different currencies have been issued facilitating cross-border liquidity, as well as making it easier for traders to mitigate risk. Also, gateways between fiat and crypto are now more amply available in over-the-counter and other types of settings than ever before. Lastly, and in line with wider fintech trends, exchanges have been breaking into the payment space.
But in the end, the success of an exchange and the appeal it commands, depends on the quality of the markets it operates. Liquidity is key.
Mid-pandemic: Crypto Remains in High Demand
Only last month, with trading volumes down by 80% on the Chicago Mercantile Exchange (CME) – a good indicator of institutional activity – and talk of investor exhaustion, just in these last few days momentum has picked up.
After weeks of reluctantly trading sideways, Bitcoin has now broken above $10,000 USD, and remains bullish. It is now up by more than 50% in the year.
In the meantime, early signs of a potential altcoin season have appeared with DeFi tokens such as Compound (COMP), ThorChain (RUNE), but also ChainLink (LINK) stealing the limelight.
Ether (ETH) has rallied up to about 30% just in the past week – a bigger gain than the S&P 500 accumulated in all of 2019 – and it is up by over 140% in the year.
It is also interesting to note that following the market crash in March, the total value of crypto assets locked up in DeFi has skyrocketed to $3.77bn USD from an already impressive $500m.
This tells us as much about the state of decentralised finance as it does about the sentiment in wider society. With fallen interest rates, continued money printing, rising unemployment, and more time spent online, it is hardly surprising that alternative financial management solutions have a special appeal.
This has not gone unnoticed in the investment community either and with more activity in DeFi, a number of tokens have been in high demand.
At AAX, after Bitcoin and native exchange token AAB, we’ve seen a particular interest in Kyber Network (KNC), ChainLink (LINK), and NEO (NEO), and to meet a growing demand among our users, in early August we will be listing a range of DeFi tokens, including Compound (COMP), Bancor Network Token (BNT) and Aave (LEND).
Playing the long game
With liquidity increasing, specifically on our futures markets, we’ve also noted a significant increase in appetite for USDT, rather than BTC.
More users, especially from Russia, China, Hong Kong, and also Singapore have been converting cash to USDT, either to be used as collateral for trading Bitcoin contracts, as a base currency to trade spot, or for USDT savings products.
Reflecting the explosion in DeFi, following the market crash in March, on-exchange we’ve likewise experienced a surge in activity with spot trade volumes up by 400%.
Part of the reason why the surge occurred can be attributed to the launch of AAB, which took place in mid-April, 2020.
However, we’ve seen similar growth spurts on our futures markets as well. As we’ve improved the spread and are working with top-tier market makers to reduce slippage, coupled with an increase in registrations, futures trading volumes in the past few days have increased on AAX by 4500%, printing a new daily record.
Indeed, the resilience of the industry as well as the resolve of participants in crypto, is quite remarkable. It is evidence that the community anticipates further growth and that there is a place for digital assets in a post-covid economy.
These charts are also a testimony to the power of perseverance where continuous improvements across user experience, infrastructure and offerings eventually pay off.
AAX is the world’s first digital asset exchange to be powered by LSEG Technology. Offering OTC, spot, and futures, it provides a highly secure, deeply liquid and ultra-low latency trading environment; and a meeting point between crypto and global finance.