How Dark Pools tacitly influence the crypto markets

How Dark Pools tacitly influence the crypto markets

In 2021, crypto investors announced market movers such as Microstrategy and Tesla as the champions of the bull market. They represented the top of an institutional iceberg with increasing interest in digital assets.

While the spotlight may not be friendly during a crypto winter, the lower half of this iceberg is still there-which would not exist without dark pools. These sometimes controversial back doors in the cryptom market serve the same function as Dark Pools in traditional markets - often markets are mysterious way.

We met with Sfox, A Full-service-krypto-prime-prime dealer to learn more about Dark Pools and their relationship with cryptoma markets.

What is a Darkpool?

A Dark Pool enables oversized market participants to act large blocks of digital assets without being visible to the general public. Their origins in traditional markets go back for several decades, enabled SEC regulation, which made it possible to deal with investors out of the question.

according to the SEK , the Dark-pool-Handel accounts for trade with US shares. More Current data from NASDAQ.

sfox explains in your New Dark-pool report Crypto-Dark pools is the processing process and the trade execution. Finally, all transactions with digital assets must be handled on the blockchain. Dark Pools pass on these transaction costs to customers. The trade version differs in the fact that crypto-dark pools use a multi-party calculation protocol (MPC) to divide the trade into several orders. This approach maintains data protection and security for the client.

Your use has been raised some controversy. On the one hand, the lack of transparency means that Dark-pool trades do not move the market at the time of trade. After disclosing the regulatory authority after trading, however, the most important trades tend to drive the market in a general direction.

larger market participation

Dark Pools played a crucial role in the run-up to the cryptomarkt bull run in 2021. SFOX shared a report by finoa to illustrate:

Source: Finoa

While the first wave of institutional interest triggered in 2021, we still have to experience the second. This lack of movement is largely due to regulatory uncertainty and price volatility.

The larger institutions that wait on the sidelines move slowly and are risky. You will not enter the market until the rules of engagement are crystal clear. And these rules are not as easy as approving or locking certain digital assets. In our conversation with SFOX, they explained that these larger, more established actors need complete compliance standards to ensure that they can meet trustworthy obligations.

We have seen since 2018 how parts of the institutional puzzle were put together - piece by piece. From the storage of digital assets to prime brokers, credit, credit and risk management facilities. A dispute between the regulatory authorities could be one of the remaining points that have to be clarified.

reduced volatility

In our conversation with SFOX, they named price volatility and illiquidity as a second barrier for institutional buy-in. Crypto Dark Pools offer a necessary problem bypass, but they have their compromises. Since the liquidity is fragmented on a global 24-hour market, many institutes have to be interconnected before they carry out a trade over the pool.

Another option for an institution is cooperation with infrastructure companies for digital assets such as Fireblocks. You can provide access to various liquidity pools, although the disadvantage of this approach is that it is not seamless. It will be necessary for the market participant to have separate accounts with the various liquidity providers.

A high -ranking representative of SFOX said that her Dark Pool is concerned with this problem by leading the trade via a "single order". This approach holds the trade privately and at the same time offers the Market Maker routing transparency. Cooperation with a specialist and leading an account at an accumulation of liquidity providers should be a solid option for institutes in the future. Institutions will find better pricing if this aggregated liquidity model is more integrated into crypto-Dark pools.

The representative made it clear that Dark Pools are not the final solution for market volatility and fragmentation. Since Dark Pools improve prices for larger trades, they will attract more institutional capital on the entire market. It has an "rising flood" effect on the industry, which improves price stability to a certain degree.

he notes that liquidity fragmentation still has to be addressed. If the price in the markets continues to fluctuate differently, Arbitrageure will take advantage of this and maintain volatility. He believes that the approach of sfox aggregation of liquidity In a single order, stability can offer institutions for increased participation.

a better result for institutions

The possibility of a limited market effect for an institution that uses a Dark Pool essentially means that the entire order is carried out without the asset price increasing disproportionately. In this way, the trade should not be in front run, and maker orders can be done without slipping.

Indeed, this means the best trade version for this institution. It also means the possibility to carry out trades to lower fees. Reduced reporting and disclosure obligations, the loss of stock market fees and fewer intermediaries ensure considerable savings.

falling arbitrage returns

In view of all this between an expansion of the market for digital assets, some of which is due to the provision of Dark Pools (as a prerequisite for the occurrence of institutions), the improved market liquidity and higher efficiency that are still associated with an aggregated liquidity approach, arcidal options, especially with less experienced investors.

hedge funds will probably add all the resulting arbitrous options. Your quants will formulate algorithms as part of sophisticated trade strategies that have been developed to remove all remaining inefficiencies that exist on the market at this stage.

Dark Pools will probably become a constant point of view in crypto technology, just as you did in Tradfi. But increasing Dark-Pool liquidity could bring in the capital that is needed to calm the waters of an industry plagued by fear and uncertainty.

This content is sponsored by sfox .

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The contribution How Dark Pools Quietly Influence Crypto Markets is not a financial advice.