The lack of suitable institutional-grade platforms is undoubtedly one of the greatest obstacles to institutional money flowing into the burgeoning field of cryptocurrencies.
However, the fact that this type of platform has not emerged so far is somewhat understandable. Not only are cryptocurrency markets a lot less mature than traditional finance markets, the specific characteristics of cryptocurrencies mean that simply overlaying existing solutions won’t suffice. One example of cryptocurrency uniqueness is having your digital assets stored on a blockchain and controlled through a set of public and private keys. This is a new paradigm for potential investors to get used to, as is the fact that keys rather than currency are stored in what is referred to as your wallet.
Even once a given user has acquainted themselves with the intricacies of how digital cash functions (no easy task), they need to navigate the confusing and fragmented landscape of exchanges – each of which provides different offerings when it comes to the cryptocurrencies and tokens made available.
These new rules and terms of engagement are a world away from the one that sophisticated investors are comfortable with, having become used to dealing with a single interface when trading in traditional financial markets. Not having a single solution that allows them to trade quickly, easily, and efficiently can be a major barrier for these investors to follow through on any initial interest they may have in the world of cryptocurrencies.
Which is why something needs to change if we want to see serious investments take off. As mentioned, there are various unique problems that need to be solved. However, one of the most significant is that of being able to place large orders and know that you are getting the best price available from the various exchange options. It seems about time, given the growing interest in the space, to build a platform capable of aggregating information from various exchanges into a single intuitive interface, with sophisticated APIs being deployed to interact with the myriad of exchanges in a streamlined fashion.
To these ends, I think Smart Order Routing (or SOR) could be an incredibly valuable mechanism to incorporate, so as to reduce the inconvenience of the aforementioned fragmentation issue.
Smart Order Routing is not a new solution, as it is already used across financial markets when individual assets trade across various exchanges. In fact, it has been a part of Tora’s offer to the asset management industry for many years now. However, SOR is not common in cryptocurrency trading, even though everyone is aware of the fragmented exchange landscape that is so characteristic of the market right now.
Notably, it can help ensure that the end user has a single pool of liquidity made up of all the exchanges available to them. For instance, if an investor wanted to place a large order for an obscure and rarely listed coin, they would only need to input the order into the platform and allow the SOR algorithm to take care of the rest. In doing so, it would take into consideration factors such as fees, liquidity, and commission accrued by given exchanges so as to effectively fill orders and to reduce any slippage.
There is currently $130 trillion of traditional assets under management, a number that trumps the $215 billion market cap of cryptocurrency. If even a fraction of the former were to be allocated into the latter, it would have a massive impact on the emerging industry as a whole. However, it’s not enough to simply look at this figure, note the potentially transformative effect on the market, and simply assume that such a change will happen. Instead, we need to collectively put forward solutions to the user problems that are holding back adoption and engagement.
More generally, the idea of investment into cryptocurrency needs to be decoupled from the complexity that’s associated with trading. High barriers to entry are limiting the number of investors getting involved. As the industry continues to evolve, it’s imperative that we turn our focus on adoption through enhanced user experience, with easy-to-use yet powerful trading tools that exist in the legacy financial system.
About the author: Gerrit Van Wingerden is CTO & Co-founder of Caspian. He has served as Managing Director at Tora for the past 12 years. Prior to that Gerrit managed the development of high volume trading applications and analytical tools for various hedge funds and bulge bracket investment banks. Gerrit holds a B.S. in Computer Science from Stanford University.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.com.
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Last modified: June 14, 2020 11:04 AM UTC