Liquidity management is very important in today’s crypto world. Read about what is crypto liquidity management, why it is important and the how to select a liquidity management company
What is Liquidity Management?
To understand Liquidity Management, first we should understand Crypto Liquidity.
Liquidity is basically the ease with which you can easily change or trade your crypto assets into fiat or other crypto. How easily you can cash out of any financial market depends on the liquidity of that product/market. High liquidity means a healthy market, organic growth of crypto assets with little variation in costs, an influx of investors and better trading prospects. It also means in a high liquid market you can exit or enter trade anytime.
Whereas low liquidity means, the market is highly volatile, the spread is high and there is lack of investors too. It becomes difficult to buy or sell illiquid crypto.
Liquidity Management is providing liquidity to a crypto asset or exchange through AMM or Order Books
Why is Liquidity important?
High liquidity results in more stable market. Consider the scenario where crypto A is highly illiquid. As a result, there is lack of investors and very low volume traded daily. As soon as a huge sell order comes through the prices change drastically. Therefore, it becomes highly volatile thereby scaring away the rest of the investors and traders too. This is why liquidity is very important. Crypto assets hire Liquidity Management companies to avoid such situations.
High liquidity means the market prices are stable and not subject to huge swings. It also means there are better and advanced metrics available for that token or coin. A liquid market generates flood of investors that are satisfied with a balanced pricing mechanism.
Factors Affecting Liquidity
The first and foremost factor affecting liquidity is the newness of this asset class. The world is slowly coming to terms with the idea of crypto payments and crypto trading. Still the lack of clear guidelines and Regulations keep many away from entering these markets. This is the reason why there is lack of investors in many crypto assets and therefore lack of volume.
In recent years, due to better adoption and high returns, volume has increased and frequency too which helps in enhance liquidity. The more crypto assets become usable in day-to-day life, the better it would perform on the exchanges.
Many countries are on the verge of introducing clear guidelines, regulations in the crypto markets. This would naturally attract more investors and increase liquidity. For now, crypto assets have to rely on Liquidity Management Companies to use strategies to increase liquidity for their crypto asset or exchange too.
How Liquidity Pools work in Decentralized Crypto Exchanges
A liquidity pools is a way of creating liquidity by Automated Market Makers. Two crypto assets are shared through Smart Contract as a trading pair and the liquidity providers earn proportional returns on their deposited tokens. They are used for swapping tokens as well as for borrowing and lending too.
These are substitute of traditional order books in decentralized exchanges.
Liquidity Management Firm
PlatinX Technology is a liquidity management firm that has been providing market making and liquidity enhancement services to crypto assets. They are one stop crypto solutions platform and have an expert’s team to guide new as well as established tokens into the crypto world. Their team consists of Finance experts, Statisticians, Mathematics’ genius, blockchain & crypto experts as well as software developers and programmers. Their aim is to give the best crypto solutions to every firm and help companies transform their structure to blockchain technology. They provide liquidity management for both centralized exchange & decentralized exchange listed tokens.