A case of DVP post-trade settlement

/ This article was initially published in Forbes and written together with researchers from the Frankfurt School Blockchain Center /

TL;DR

This article sheds light on the application of blockchain technology to the existing financial market infrastructure, namely to post-trade settlement. We show how blockchain technology can facilitate trustless delivery vs. payment (DVP) settlement without any intermediary. Moving settlement processes entirely on decentral technologies makes the settlement process more efficient since it decreases the associated transaction costs and reduces involved risks. …

Based on the market data that we dumped from Binance, Bitstamp, Coinbase and Kraken for the first week of June 2020, there is a clear leader that offers the deepest BTC/EUR liquidity. However, there are some details that should be considered when choosing a suitable trading venue.

Summary

• Those who look for deeper crypto liquidity must look not at trading volume but the other liquidity metrics
• BTC/EUR may appear a mature market with certain liquidity metrics smoothly fluctuating around its average values when the market is calm
• However, the price shock on the 2nd of June has shown that the on-exchange…

While cryptocurrency markets are still fragmented, failure to find a good solution that provides for low transaction cost, low counterparty risk and abundant liquidity might pose a threat to the prosperity of your business. Working with liquidity providers (LPs) rather than with a single crypto exchange might be a solution.

Resume

• Thorough transaction costs analysis is a must for active trading participants, as transaction costs badly impact overall profitability
• Counterparty risk (risk of default of a trading partner) is still a major threat in cryptocurrency markets
• Liquidity of a crypto asset shows how easily, quickly and at what cost an asset…

Common mistakes when trading in cryptocurrency markets. Introduction to the order execution costs and true liquidity.

Resume

• Uninformed trades are primarily initiated by retail investors or by financial institutions that either execute retail orders or hedge their crypto exposure to retail buyers/sellers
• Slippage is of low importance for uninformed traders and may be irrelevant to the order execution strategy
• Limit orders don’t guarantee execution and may involve additional market risk as well as hidden losses
• Market impact worsens final execution price when you use limit orders or a series of market orders
• Liquidity aggregators can be a powerful solution for uninformed…