Understanding liquidity in cryptocurrency
December 08 Today, the hot topic in the blockchain eco-system is decentralised finance DeFi. DeFi is a developing area at the intersection of blockchain, digital assets, and financial services. DeFi is the general term typically used to describe blockchain-based financial services that are provided without the involvement of centralised traditional financial intermediaries, such as custodian banks, clearing houses and trading venues. DeFi operates in a decentralised environment on the basis of public, permissionless blockchains and services are generally encoded in open-source software protocols and smart contracts. The market experienced explosive growth since the beginning of DeFi in
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- Search Results
- DeFi’s Liquidity Pool Party is Getting Started (and everyone’s invited).
- Video: DeFi Yield Farming Explained | Best Yield Farming Guide for Crypto Beginners
- What is Cryptocurrency Liquidity?
- Demystifying Cryptocurrencies, Blockchain, and ICOs
- NebulaECN Launches Instant Deep Liquidity and Radical Transparency for Crypto Market
- Crypto 101: What is Liquidity Farming?
- German Funds' Crypto Investments Will Pose Liquidity Risks
- What Are Liquidity Pools?
- Top liquidity providers and how to choose the best of them
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We use cookies and other tracking technologies to improve your browsing experience on our site, show personalized content and targeted ads, analyze site traffic, and understand where our audiences come from. To learn more or opt-out, read our Cookie Policy. What if a digital currency wipeout could injure — or even destroy — the entire cryptocurrency ecosystem? Questions about stablecoins, particularly one called Tether, have been knocking around in financial circles for months: are they as stable as they ought to be?
On August 9th, Tether put out an attestation about its reserves , a way of reassuring users that the most popular stablecoin is, well, stable. The company has also been investigated by the New York attorney general for claims around its backing and settled with the NYAG earlier this year. As part of the settlement, Tether is prohibited from doing business in New York state, the capital of the US financial world. After months of hemming and hawing from regulators, chair of the US Securities and Exchange Commission Gary Gensler has now clearly asked for more authority to regulate cryptocurrency.
In fact, the way to get rid of stablecoins might just be… the dollar but digital. These digital currencies, which are pegged to other assets such as the US dollar or the Euro, are primarily used as payment mechanisms. Some stablecoins are centralized, as well. That rendered those funds useless to the attacker. Tether is already in contact with the project that suffered the breach.
Tether validate the freeze and programs reissuance of funds. Happened in the past with Kucoin hack and others. Payments, says Bruce Mizrach, an economics professor at Rutgers. The same is true of USDC, another stablecoin. Some of that delay is that Mars has to comply with anti-money laundering laws to exit cryptocurrency back into the US dollar.
Now, he could instead exit his Bitcoin trade into a dollar-pegged cryptocurrency. The relatively quick transaction would mean that his funds would be available to go into another investment right away.
If Mars is trying to do rapid trading, he might choose to do this instead of moving back and forth between the traditional banking system and cryptocurrency. Stablecoins can also be used for margin trading. Our buddy Mars can borrow money from an exchange such as Kraken, which will use its own funds to help execute the trade. But Mars has to put up some collateral for the loan, and stablecoins can be useful for that. Margin trading is risky — it can lead to very big losses.
It is! To the extent they are, we will apply the full investor protections of the Investment Company Act and the other federal securities laws to these products. Cryptocurrency regulation is kind of a hot topic right now, though, and Gensler used to teach courses on cryptocurrency during his last gig at MIT.
Well, stablecoins are huge. The most popular one, Tether, launched in and is pegged to the dollar. USDT tokens are involved in half of worldwide Bitcoin trades. And there have been questions about whether movements in Tether have created price manipulation in Bitcoin. Apparently, this works. In , it was originally called Realcoin, and the idea was that it would be backed by the US dollar on a one-to-one basis. See, in , Tether also announced a partnership with cryptocurrency exchange Bitfinex.
In , the leak of the Paradise Papers established that the same people control both Bitfinex and Tether. Anyway , Tether settled the case with New York state. In the settlement agreement , the office of the attorney general found that Tether had no reserves to back the stablecoins in circulation for periods of time. Tether declined to comment on why money moves between Bitfinex accounts and Tether accounts. The settlement agreement, by the way, bars Tether from doing business with anyone in New York.
Tether has always been fully backed and the assurance opinion made available today confirms it once again, and puts Tether ahead of the industry on transparency. Mmmmmmm, well, the first move was pie charts! As of March 31st, about 76 percent of Tether was backed by cash and cash equivalents, including unspecified commercial paper, which is a kind of short-term debt issued by companies. The recent attestation is more detailed.
A quarter of the assets are in Treasury bills, a significant increase from the last report — which may reassure some people, since T-bills have a reputation as very safe assets.
According to the accounting firm Moore Cayman, Tether has more money in its reserves than is required for redemption. At this time, we do not disclose the make-up of our commercial paper holdings. You can see the issuer, the specific identification code, how much money is invested, and the market value, among other things, for each holding.
So we got an attestation to its assets : 61 percent in cash and cash equivalents and 9 percent commercial paper. Of the top 10 stablecoins, the most transparent is Gemini , says Mizrach. Tether, naturally, would disagree. More or less, yeah. Yeah, according to Bloomberg. Actually, yes. They are working as hard as they can, they are super hard workers.
They are really deeply involved with our businesses and they handle day to day operations, and they also are extremely available to our customers.
I also asked if the commercial paper was Chinese. Tether declined to comment on that. But a lot of other stablecoins have failed! And 25 percent of those created in also failed. That makes the failure rate of stablecoins comparable to other digital assets.
A bunch of people decide to redeem their tokens. Our friend Mars Vulrich is among them. We may have gotten a preview of what could happen with Tether in a run on a different stablecoin in June. I took a flyer and lost. During those events, the Tether peg remained solid, all redemptions were honored, and the price across exchanges remained stable. Tether has been stress-tested multiple times and passed with flying colors each and every time.
Tether is often used as a parking place for high-frequency traders, Mizrach says. That means if Tether loses its peg, it can also tank Bitcoin and Ethereum. Tether is involved in more Bitcoin transactions than the US dollar is. A report from JP Morgan in February pointed out that USDT does a lot of the same things in the cryptocurrency world that banks do in traditional finance, but without the same supervision and without deposit insurance.
Li agrees. Yes, according to Fitch , one of the Big Three credits rating agencies. The other thing Fitch points out is that during a period of financial stress, Tether may not be stable. A digital dollar would drive out all of the dollar-pegged stablecoins, because that would mean zero counterparty risk, Mizrach says. Li views central bank digital currencies as inevitable. He also wants lower fees on transactions. Cookie banner We use cookies and other tracking technologies to improve your browsing experience on our site, show personalized content and targeted ads, analyze site traffic, and understand where our audiences come from.
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DeFi’s Liquidity Pool Party is Getting Started (and everyone’s invited).
Liquidity is the measure of how easily you can convert an asset into cash or another asset. You may have the rarest, most valuable old book in your backpack, but if you're alone on a remote island, it will be difficult to find a buyer. This is why liquidity is important when it comes to financial assets. Liquidity is a measure of the ease at which an asset can be converted to another asset without affecting its price. In simple terms, liquidity describes how quickly and easily an asset can be bought or sold.
Video: DeFi Yield Farming Explained | Best Yield Farming Guide for Crypto Beginners
In a perfectly competitive market, liquidity will erode the ability to charge a discounted price or a premium. This is because active trading of a cryptocurrency or any asset class helps avoid price distortions. A cryptocurrency which is liquid typically trades around its market price. The most liquid market in the world is the forex market. On the other hand, the real estate market is typically considered to be illiquid. This is because properties are often not easily sold, and can involve a long chain, a lot of paperwork as well as be subject to other variables. Liquid markets are typically preferred by traders. An illiquid market makes it very difficult for participants to enter and exit positions. Trading volumes for Bitcoin are now comfortably in the tens of billions on a daily basis, and have grown substantially since This is not to say that the bellwether currency has never experienced bouts of illiquidity.
What is Cryptocurrency Liquidity?
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Demystifying Cryptocurrencies, Blockchain, and ICOs
Cryptocurrency was born on the idea of decentralisation; the idea that there should be no middleman in between two parties exchanging assets in a trustless manner. But another type of crypto finance venue that has grown strongly in the past couple of years has been the decentralised exchange DEX. Unlike Coinbase, or Kraken, or Bitstamp or any other CEX, there are no gatekeepers, no custody, and no need to set up an account. What these platforms do is run trading venues on top of the Ethereum or Binance Smart Chain blockchains, incentivising their users to provide liquidity and make their own markets. But the really clever thing that Uniswap does is to allow anyone to create their own market and provide owners a venue to trade their cryptos back and forth.
NebulaECN Launches Instant Deep Liquidity and Radical Transparency for Crypto Market
A tailor-made service that allows you to buy cryptocurrencies safely and without having to deal on the platform. Buy cryptocurrencies in a simple, safe manner and in full compliance with European legislation. Operative since Maximize the value of your capital by buying bitcoin and cryptocurrency periodically in a simple and reliable way. Buy cryptocurrencies in 3 clicks.
Crypto 101: What is Liquidity Farming?
The concept of liquidity has many facets, and they influence the price of Bitcoin. One way of defining liquidity is the ability of an asset to be converted to cash on demand. Another view is that liquidity is determined by the bid-ask spread , and an investment with a lower bid-ask spread has higher liquidity. The market usually becomes more competitive as more of an item is bought and sold.
German Funds' Crypto Investments Will Pose Liquidity Risks
RELATED VIDEO: What is liquidity?At GSR, we have a culture of approaching complex problems with tenacity and imagination. We build long-term relationships by offering exceptional service, expertise and trading capabilities tailored to the specific needs of our clients. Contact us. We partner with brave and brilliant entrepreneurs who are building the future of finance. We work with cryptocurrency projects at crucial points in their life cycle, providing robust liquidity that helps enable their technology.
What Are Liquidity Pools?
Fintech start-up Ripple on Tuesday said it's launching a new product that lets financial services firms offer their customers the ability to buy and sell cryptocurrencies. The San Francisco-based company said the feature, called Liquidity Hub, will give its enterprise clients access to digital assets from a range of sources including market makers, exchanges and over-the-counter trading desks. Clients will be able to offer trading in a selection of cryptocurrencies including bitcoin , ethereum , litecoin , ethereum classic , bitcoin cash and XRP , Ripple said. The company also hopes to offer other digital assets like NFTs, or non-fungible tokens , in future. The feature is currently in a preview stage but is set to launch in , Ripple said. Founded in , Ripple is closely associated with the cryptocurrency XRP. The company markets XRP to financial firms as a kind of "bridge" for speeding up international payments with its On-Demand Liquidity product.
Top liquidity providers and how to choose the best of them
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