Liquidity and market efficiency in digital assets: How Harmony is positioned

“Small-Cap Coins Stuck In Vicious Cycle Of Low Liquidity, High Slippage” is the title of the article published by CryptoBriefing — a leading independent research publication focused on cryptocurrency markets. Smaller-cap cryptocurrency coins are struggling with low liquidity, destined to suffer in a vicious cycle with their ecosystems struggling to maintain deep order books — making transactions harder to execute.

CryptoBriefing has partnered with the open-source software client that helps individuals to build and run high-frequency crypto trading bots, HummingBot, to research the correlation between slippage and market cap.

The report suggests that “The most liquid asset is 600x more liquid than the least liquid asset” according to the report, and large-cap cryptocurrencies and stablecoins generally have the strongest liquidity.

In comparison to other reports, HummingBot researchers introduce slippage as a metric to understand the real liquidity of a digital asset in opposition to previous research which mainly compares the indicated volume. As slippage, we refer to the value which represents the difference between the price expected and price executed. Coins with high liquidity have lower slippage, as they have deeper order books so asks can be filled at different price points.

Since volume can be easily manipulated by cryptocurrency exchanges or even from projects themselves, Hummingbot researchers indicate that slippage could be a reliable metric to indicate the correlation between market prices and the traded volume, and how the second is realistically reflecting the prices showcased by benchmarking websites.

For this research, the team has used data from the Binance order books of August 2019. As expected the report has verified that Bitcoin and Ethereum are the most liquid assets. The liquidity is concentrated on a small number of assets. The report suggests that there is a strong correlation between liquidity and market capitalization.

How Harmony’s $ONE is positioned in terms of liquidity?

Among the 159 analyzed tokens, it’s an interesting metric that Harmony, followed by Matic Network, and Dust Foundation have surprisingly lower slippage given their market caps. The most illiquid coin was Dent Wireless $DENT — at $19M total value — with slippage of nearly 600x that of Bitcoin.

Along with the indicated price on secondary markets, liquidity is the most important value metric of a digital asset. Illiquid digital assets are less viable and harder to trade, pushing more people off their ecosystem.

You can review and download the full Crypto Liquidity report here!