Dark Liquidity Pool

A liquidity pool is a vital piece of the ecosystem of an asset. This is a solution which provides exchanges, wallets and other 2c oriented trading businesses with liquidity and order execution.

If we imagine a new exchange, where there are several customers and they want to trade for some asset, let's say BTC for USDT. When they push the "buy" button, their order is placed into an order book. The trade requires a counterparty to execute this order. This usually takes place on fully-fledged exchanges where there is another party who wants to sell USDT for BTC, but our new imaginary exchange is small, and the market is tiny. Meaning less options for making a profit.

At this point, they have a few options:
Find / order market makers - This has a cost, of course. Market makers don't like smaller exchanges because there is not a large enough trade volume to make a profit from.
Do nothing and concentrate on marketing - without market makers and a proper order book, it looks like wasting money. Nobody wants to pay higher fees.

Use a liquidity provider such as Black Ocean – Full integration requires additional integration via API, but for an exchange, it would be a small amount of work.

The exchange can make additional income. Black Ocean pays 0.005% - 0.01% for each order, which is funded by exchanges. It means that an exchange can offer zero fees to customers, and it continues to make money, but usually exchanges charge a fee. This means that an exchange can generate money in two ways – fees from customers and the reward from the liquidity pool. Comparing market makers, an exchange should pay him around 0.005% to 0.015% for the same service.

How is Liquidity Determined?

There are a number of ways to calculate the liquidity of an exchange. Below are three of them.

Long and Short Positions
By viewing the total number of open long and short (buying and selling) positions, analysts can understand which assets are being traded the most on the exchange and the speed in which the trade is being fulfilled. A greater trading volume and number of open positions lead to a more liquid market. The number of incomplete purchases or the sale of any asset, which also consists of stop-limit orders and iceberg orders, should be included in this total also.

Bid/Ask Spread
Bid/ask spread references the difference between the expected selling price of an asset and the price at which the asset is bought. A low bid/ask spread means that the market is highly liquid because both sellers and buyers are trading at a price they feel is fair.

Overall Trade Volume
The greater the daily trade volume is, the more liquid the exchange is. Industry giants such as Binance and Bitfinex display trade volumes, which can be found at the exchange's respective websites.

Why Does Black Ocean pay? Is this charity?

Black Ocean has VRM and several big market makers and liquidity providers onboard. They pay 0.04% fee for each order to Black Ocean for an opportunity to trade against an order flow from c2 oriented venues (exchanges, wallets, digital banks, OTC merchants, etc). It helps Black Ocean to pay 0.005%-0.01% to its C2 oriented customers. Answering to the question - of course, it's not charity.

Generating Liquidity as a Top Priority

Exchanges must be ready to meet the demand of their customer base. So, generating high-quality liquidity is of very high importance. A good exchange is expected to be very reliable and easy to use. The order flow should be basic, with advanced options for those that enjoy different trading strategies. Price stability is a key marker of an exchange's stability. If an asset's price is determined by a single exchange, then the ecosystem of that asset as a whole, starts to be centralized around this exchange. The opposite of what crypto stand for, so diversifying the assets spread on several exchanges can have a greater stabilizing effect. All of these factors are extremely important for customer satisfaction and of course, retention.

Do these MMs Trade Predatory Strategies?

Market makers compare among themselves to execute each order. A rule is simple - who offers the best price and makes it faster than the other traders - they will successfully execute an order. This makes pricing better for the customer because he gets the best offer for his order.

Summary

With the liquidity pool, c2 oriented businesses can forget about market liquidity and concentrate on a most essential thing - customer acquisition and marketing.

Getting Started

Getting started with Black Ocean couldn't be simpler. Head over to Black Ocean Dark Liquidity Pool Scheme and begin your liquidity journey today.

About Black Ocean Dark Liquidity Pool

The Dark liquidity pool provides retail-oriented trading venues, OTC desks and digital banks with liquidity and order execution. Connected companies improve their income with us because Black Ocean Dark Liquidity Pool pays them for their order flow.