Cryptocurrencies are the new type of assets burst into the financial world quite recently. Which problems could an experienced market participant meet when dealing with this type of assets, and what would be the solution?

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▪ Over the counter - buyers and sellers are in one location, all trading happens
on peer-to-peer basis
▪ Marketplace enables buyers and sellers to find each other
▪ Price discovery is slow and imprecise
▪ Sellers and buyers must be present to answer inquiries

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▪ Buyers know in advance of the auction - liquidity concentrated
▪ Auctions held rarely - poor availability, price unknown between auctions
▪ Buyers offer binding bids quickly, delivery delayed - better price discovery

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▪ A dedicated specialist is charged with manual market making and order matching
▪ Specialist offers liquidity when market is open – good availability
▪ Specialist is quoting a price – informative
▪ Both buy and sell orders are decoupled from delivery – good price discovery
▪ Exchanges pose no financial risk to traders since they are not in custody of capital, they only
facilitate trading

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▪ Specialist has the monopoly on market making – high trading costs
▪ One instrument is traded on one market only – no incentive for an exchange
to innovate – high costs
▪ Specialist is the sole source of a quote price – possibility of manipulation

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▪ Automatic order matching and quotation engine
▪ Market making is open to everyone – competition reduces overhead
▪ Multiple exchanges with inter-exchange order routing – lower transaction
costs due to competition
▪ Diverse pool of participants due to fractal time horizons

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1. Efficiency of price discovery (concentration of liquidity)
2.Trading costs
▪ Transaction fees
▪ Overhead from speculative trading
3.Availability of trading and price information

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13. TECHNOLOGY TX/SEC, PROVEN CLAIMED IN PRODUCTION
VISA Traditional 50000 Yes
BITCOIN, ETHEREUM PoW blockchain 7-15 Yes
RIPPLE, IOTA, BYTEBALL RCL/DAG + witnesses 30-100 500-1000 Yes
R3 CORDA Private Raft / BFT 50 500 Yes
LIGHTNING, RAIDEN Sidechains - 1000 -
TECHNOLOGY TX/SEC
EQUITY ORDERS / PAIR Traditional 1 000 – 100 000 Per single symbol/pair
CRYPTO ORDERS / MARKET Crypto exchanges 500 – 3 000 All exchanges, all pairs
EQUITY ORDERS / MARKET Traditional 100 000 – 5 000 000 US equities only
EXECUTION LATENCY - CRYPTO Crypto exchanges 0.1 – 15 seconds Unpredictable performance
EXECUTION LATENCY - EQUITY Traditional < 0.001 seconds Both regular and smart orders

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