Hello fellow Steemians,
Here is an interesting article I read recently regarding decentralized exchanges and the liquidity challenges that they are facing. It is very informative and clearly written. Below is an excerpt from it. Do you think that increased liquidity on decentralized exchanges like https://etherdelta.github.io will help accelerate the mainstream adoption of virtual currencies and assets? Let me know in the comments.
The full article is available at: https://www.coindesk.com/solving-liquidity-challenge-decentralized-exchanges/
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"The total market capitalization of cryptocurrencies is now above $137 billion, up from $16 billion at the beginning of the year.But before the world can conduct a significant amount of its transactions via cryptocurrency markets, the problem of liquidity must be addressed.
Liquidity refers to the extent to which a market allows assets to be bought and sold at stable prices. Lower liquidity tends to result in a more volatile market (especially when large orders are placed), and it causes prices to change more drastically; whereas higher liquidity creates a less volatile market, and prices do not fluctuate as significantly.
Today, cash is the most liquid asset. If a transaction of $1 million takes place, the market is able to absorb that transaction easily without the value of the dollar drastically changing. Costs associated with the transaction, and the value of the currency at the time of the transaction, are also known beforehand.
However, the same transaction in bitcoin, or any other cryptocurrency, has a much greater effect on the cryptocurrency's value.
This is because of the market's lack of liquidity. The amount of cryptocurrency available on a specific trading platform can run out, requiring the buyer to complete the transaction at 1–10 percent more than expected.
To complete the same transaction of $1 million, it could end up costing between $10,000 and $100,000 more than the original price to make the trade."
Original Source: https://www.coindesk.com/solving-liquidity-challenge-decentralized-exchanges/
Author: Loi Luu
