One Trading, a cryptocurrency exchange that spun off from Bitpanda early this year, We recently unveiled an upgraded platform for cryptocurrency traders.. What are the main selling points? speed.
One Trading boasts on its website that it is “the world’s fastest trading venue.” Amazon Web Services tested its claim by comparing its 112-microsecond round trip with CME and the London Stock Exchange Group’s Turquoise venue. While all users have access to One Trading’s API, institutions can go one step further by purchasing colocation services to access even faster trading speeds.
Josh Barraclough, CEO of One Trading, said the idea is to give customers “an unparalleled advantage in the highly competitive world of cryptocurrency trading.”
Even after the cleansing effects of a year-long cryptocurrency winter, One Trading has entered the crowded cryptocurrency exchange market. The sector recorded monthly trading volume of $826 billion in November, according to The Block’s data dashboard. There is a clear need for differentiation for newcomers.
One Trading has decided to focus on speed, but executives differ on how important speed is in today’s cryptocurrency market, which is more than a decade old.
Some of the oldest and largest players still see speed as the key battlefield, while others are more concerned with ensuring uniformity on the battlefield.
heavyweight exchange
Launched in 2013, Kraken is a significant part of the older guard in the cryptocurrency space and currently accounts for about a fifth of the cryptocurrency exchange market that supports US dollar trading. This year, the company embarked on a campaign to upgrade its technology with waiting times in mind.
A Kraken spokesperson said that as markets mature, so do traders, creating a “need for increased speed to remain competitive and access liquidity.”
“Since 2011, Kraken’s engineering team has continuously improved the exchange’s scalability and overall performance. “We have further improved transaction latency, reducing it by more than 95% over the last 18 months,” he added.
Kraken in April Announced the imminent release of the new FIX API. For spot market data and trading — now available in real time. The idea was to provide institutional traders with an industry-standard API, allowing them to start trading faster and easier.
“By investing in improvements across our technology stack, Kraken can serve as a bridge to the cryptocurrency ecosystem by providing a faster, more stable, more liquid and fully-featured trading experience for all of our customers. This has been particularly important in recent weeks when market activity and volatility have increased,” a Kraken spokesperson said.
Kraken’s biggest rival in the US dollar market, Coinbase, has not ignored the need for low latency and has placed greater emphasis on creating a level playing field for all market participants.
Coinbase is still the 800-pound gorilla with about 40% of the market in the US. Based on The Block’s data dashboard.
Harsha Bhat, the company’s senior director of software engineering, said Coinbase “provides a wide range of customers with access to one of the deepest liquidity pools of any regulated cryptocurrency spot exchange through low-latency, high-throughput APIs and advanced trading interfaces.” “He said. ”
“As a cloud-based, centralized exchange, we provide our clients with equal, fair and transparent access to matching technology, market data and APIs, while also publicly displaying availability zones,” Bhat added.
This is a far cry from creating an “advantage” for traders based on a microsecond head start.
But while Coinbase and Kraken target institutions, they also have to consider their millions of retail customers. This is not the case for new entrants to the market. This is true even if you provide services to retail businesses. The key question for these startups is whether institutional customers want the advantage in speed.
View from the trading desk
Max Boonen, founder of market maker B2C2, sees demand for exchanges that offer low latency. “If a market participant has a speed advantage, they can make more money than everyone else,” he said.
But he noted that speed is not the only driver of price discrepancy that HFT firms may seek to exploit. Structural inefficiencies such as the so-called kimchi premium, which indicates when cryptocurrency prices rise Quoted higher in Korean Won Than other currencies — just another example.
“Speed is one advantage that some companies are willing to pay a lot for, but it doesn’t make much of a difference in the market as a whole,” Boonen said. “Speed is only important to a small number of players.”
Nonetheless, cloud services giants like AWS appear to be well-positioned to capture a handful of businesses.
Mark Hingston, chief technology officer at Auros, a cryptocurrency-focused algorithmic trading and market-making company, said cloud providers are “always innovating in this space,” and pointed to new services AWS launched last year.
He said AWS recently launched Precision Time Protocol (PTP) for virtual servers, a subset of the EC2 system, making it easier for both platforms and traders to access highly accurate timing. Hingston also said that since last year, AWS has allowed traders and venues to share EC2 cluster deployments. This means that servers are located as close to each other as physically possible within AWS facilities to minimize the time it takes to insert and install. Cancel your order.
“Overall, cloud providers are becoming more aware of the benefits of working with HFT traders in the cryptocurrency markets,” Hingston said. “As a result, they are willing to tailor solutions or host in-depth analysis sessions to help traders understand how to get the best possible latency on their exchange connections.”
An AWS spokesperson declined to comment on these services.
For Hingston, a low-latency system allows traders to provide more competitive quotes, resulting in tighter spreads. “This not only contributes to improved price discovery, but also improves market efficiency, ultimately reducing overall transaction costs for all participants,” he said.
Looking for a level playing field
However, some trading companies appear to be more concerned that they may be penalized by speed discrepancies.
Jordi Alexander, CIO at Selini Capital, said: “As an HFT market making company seeking to provide deep liquidity, we are ideally looking for a venue that can provide a level playing field when it comes to latency. This allows us to protect ourselves from harmful flows, allowing us to quote large limit orders without being constantly picked on.”
Alexander said a toxic trading environment can manifest itself in two ways. The first is a result of networking.
“Given that most price discovery is taking place in large hubs, particularly Tokyo AWS, toxicity arises if exchange matching engines are located in geographic locations that offer specific networking advantages to one or two companies due to private microwave routing. “For example, if the venue is in London, if someone has a unique link to Tokyo-London that can overwhelm the competition,” he said.
Alexander’s second example concerns an exchange that gives certain players direct access to its trading engine. “If companies that do a lot of liquidity removal are given favorable access, it could lead to worse execution for everyone because the balance becomes imbalanced and the liquidity provided has to be more defensive,” he said.
From the Flash Boys to today
The debate over how to balance fair market structures with traders’ demand for premium speeds is not new, nor is it limited to cryptocurrencies. they continue Even before Michael Lewis’ Flash Boys was published.This is a book about HFT outfits and dark pools on Wall Street that debuted in 2014.
Most cryptocurrency traders will be much more concerned about reliability than whether their orders are filled faster than anyone else’s. As Bhat said, latency is important, but Coinbase strives to “combine low latency with a deterministic experience to deliver the best trading results.”
However, there are enough HFT companies and cutting-edge venues for AWS to gain traction in the faster throes of the cryptocurrency sector.
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