On the 22nd of May 2010, a developer brought two pizzas using 10,000 Bitcoin . Since this time there has been a growing demand to buy and sell Bitcoins, and the ongoing challenge has been to bring buyers and sellers closer together.
Cryptocurrencies are generally traded through networks of centralized and decentralized exchanges. Each exchange has a number of buyers and sellers whom all participate in the process of price discovery.
The connections between these different exchanges are limited, as users tend to cluster around what they consider to be the ‘best’ exchange. Support for specific National currencies on an exchange is a strong driver to bring users to an exchange, along with a simple and cheap method to transfer those national currencies back and forward. Additional drivers can include support for specific cryptocurrencies, where some exchanges specialize in supporting as many different cryptocurrencies as possible.
The clustered nature of users and exchanges means that price discovery between exchanges is somewhat isolated. Some professional traders will arbitrage across the various exchanges to take advantage of price differences, but in times of high volatility this arbitrage activity is insufficient to equalize prices across all exchanges.
The demand is strong for a service where users can buy or sell cryptocurrency from any exchange without having an account. Dimensions Network are building a Liquidity Aggregator to allow its users to do just this; their users will have access to pricing at any major exchange by only having a single account at Dimensions Network. This is one of the many features included in their “Next Generation Crypto Trading Platform”.
Liquidity Aggregation is also critical for large institutions investors, as per their whitepaper:
“When Institutional investors buy or sell a large amount of cryptocurrency, they need to work with exchanges and/or OTC facilities which can accept their FIAT currency and execute the transaction for them. Depending on the size of their order, they may need to spread it over time, or buy simultaneously from multiple exchanges to avoid changing the price too much on any one exchange.
Using the Dimensions Network Liquidity Aggregation service, they are able to deal with one company, and have their order automatically spread over multiple exchanges without having to deal with the exchanges directly.”
The critical requirements for an Aggregation service are:
- A banking license in multiple jurisdictions to handle multiple FIAT currencies
- Forex Trading and Hedging Facility
- Regulatory and legal compliance to ensure access to critical geographic markets
- Creation of a FIX API and API connections to multiple exchanges
- A large FIAT and Cryptocurrency liquidity pool spread across multiple exchanges and bank accounts
Dimensions Network are currently performing a token sale to fund these developments and build the liquidity pool.
To find out more https://dimensions.network/en/