Let us understand the importance of crypto liquidity providers and how to choose a crypto liquidity provider company?
What are Liquidity Providers?
Every market, assets needs liquidity that means how easily it can be converted into cash. A Liquidity Provider company works as an intermediary by quoting the buy and sell prices simultaneously. By creating volume they enhance liquidity and reduce volatility of crypto assets. Lower liquidity means exchanges are prone to market manipulation and would suffer from price slippage. Crypto Liquidity Provider Company work to keep bid-ask spread tight and also help discover fair price for assets.
The importance of a Crypto Liquidity Provider Company
Centralized Exchanges employ crypto liquidity providers to absorb the spread between buy and sell quotes and fulfill orders on both sides. They provide following services –
- Minimize Bid-Ask Spread
- Reduce Volatility
- Prevent Market Manipulation
- Increase volume traded on Exchange
In centralized exchanges, a Liquidity Provider company also provides order book replication, aggregating order books from multiple exchanges, spot execution and even optimal trade execution.
In Decentralized exchanges, a crypto liquidity provider company works as AMM. AMM or Automated Market Maker use mathematical formula to create liquidity pools. Mainly two crypto assets are traded in that pool and AMMs allow those to be traded automatically without permission through liquidity pools. The price of each crypto asset is determined by their relative percentage in the pool. Trades are done here through Smart Contract.
Overall if you have crypto tokens then you can become liquidity provider by placing those tokens in a liquidity pool. The exchange fee is split between liquidity providers in accordance to the shares in the pool. However this is not as easy as it sounds. AMMs have to provide large amounts of liquidity to achieve the level. They also have to provide two tokens to supply equal liquidity on both sides of the trade.
How to choose a Crypto Liquidity Provider Company
To choose a liquidity provider, you should consider the factors given below –
- Reliability – Reliability is very important when it comes to financial markets as there are huge volumes of money involved. Reliability of a liquidity provider can be checked easily through its past performances, client testimonials, social media presence and review etc.
- Offering – Discuss what they are offering. Trading is evolving and best Liquidity provider companies work with multiple assets. Moreover what support they offer and how much is professional technical support available.
- Stability – Rely on established, experienced and proven companies.
- Execution – Test their execution quality, the number of rejects and slippage. These would help keep variations under control and will not harm in the longer run.
- Data & Pricing – Data and price feeds have to be fast and there should be no delay in latest price reflection to avoid gaps. A good liquidity provider company should have low latency software.
- Reporting – The liquidity provider should provide complete reporting tools such as email notifications, reports on closed and open transactions, profitability report, tick history and more
Cryptocurrencies are open to trade 24*7. Therefore the provider must be available 24*7 too. PlatinX Technology is a prominent crypto liquidity provider company offering solutions such to tokens, crypto exchanges to enhance liquidity. We have a fully developed AMM algorithm to provide liquidity to highly illiquid tokens too.
We provide transparent communication, reporting and pricing with clearly defined goals of agreement for mutual success. Thereby ensuring tight spreads, deep order books and overall enhanced liquidity. This is only possible with the combined effort of our expert team and use of advanced technologies.