Cryptocurrency Lending for Exchanges
Over the past decade, cryptocurrencies have gained increasing significance, both in terms of popularity and relevance. Starting with Bitcoin in 2008, we now buy, sell, trade, and make payments with thousands of other cryptocurrencies. However, for most users, it’s either not possible or extremely cumbersome to directly access cryptocurrencies.
Cryptocurrency exchanges are online platforms that allow users to acquire and interact with crypto assets, using fiat or digital currencies, and other cryptocurrencies. Since they regulate the prices of crypto assets based on market demands and supply, exchanges are fundamentally different from crypto wallets and wallet brokerages.
However, apart from on-platform buying and selling, traders also gain profits through arbitrage from cross-platform trading. Simply put, arbitrage is the difference in the prices of crypto assets across exchanges, resulting from varying trading volume, among other factors. Although profitable for traders, arbitrage is detrimental to exchanges, especially because they lead to a decrease in trading volume and liquidity.
Crypto Lending: An Exchange’s Way Around Arbitrage
Analyzing bitcoin’s tick-level data from 2017–2018, it has been found that global exchanges incurred losses of nearly $380 million due to latency arbitrage. In turn, the total trading volume decreases globally as a result of such a huge loss figure.
While high-frequency traders profit from this latency, exchanges and trade investors with lower computation power suffer, while the overall market trend bears detriment. As a solution to this problem, crypto lending empowers exchanges to regulate the rate of coins and tokens in a comprehensive manner.
Achieving Lower Arbitrage
Total trading volume, supply, and demand are three crucial elements of an exchange’s automated asset price determination protocol. In general, the lower the gap between demand and supply (liquidity), the lesser is the volatility of an asset’s price. In this context, crypto lending is a way for exchanges to ensure liquidity through a steady supply for an asset in relation to the demand.
In turn, lower arbitrage means traders stay on the exchange, thus allowing the platform to either increase or maintain their trading volume. This is especially necessary for smaller exchanges that do not have the reputation and volume as the bigger names. In fact, liquidity is a major reason why some exchanges are bigger than others — better the liquidity, better the pricing.
Hybrid Bank — Innovating Solutions in Crypto Lending
As a part of its diverse portfolio of lending services for individuals, mining companies, and exchanges, Hybrid Bank enhances the agility of cryptocurrency exchange platforms through optimized Loan-to-Value rates. Thus, they enable exchanges to efficiently manage both demand and supply on their platforms.
Apart from agile and easy borrowing options for exchanges, Hybrid Bank offers highly competitive rates in comparison with existing market indexes. In doing so, they also enable exchanges to gain higher capital returns through margin lending activities.
Lastly, Hybrid Bank is a fully decentralized, transparent, permissionless, and censorship-resistant platform. It is among the limited class of lending service providers that are intuitively transforming the crypto liquidity, thus driving greater adoption and mainstream use cases.
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