rickyvic
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Looking again at cryptos from a liquidity provider point of view.
It looks shady as far as I can see. |
"amicus Plato sed magis amica Veritas" |
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nikol
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I am afraid, this layer does not exist within crypto. Everything is P2P, C2P, C2C, B2B etc. Entire "kamasutra": there are P2C2P, C2P2P2C and longer chains.
Leverage is via DeFi.
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... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c) |
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Not currently a client, but taking a look at Silvergate. They are US based and seem to have a solid rep. USD settlement with counterparties also banking there, USD leverage against on-exchange crypto assets, and institutional custody solutions.
Wouldn't call them a prime in the traditional sense, but they provide some of the basics. Helpful when many banks have a general aversion to any type of high throughput crypto business. |
"Nothing is more dangerous to the adventurous spirit within a man than a secure future." |
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nikol
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@rickyvic
Yes, I am wrong, listen to Grisha.
What I still would like to stress is that if your hands are "regulatory free", then there is no need for prime brokers - crypto market has it already.
Note aside: However, if such demand, like yours, does exist then the supply will emerge almost instantly. |
... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c) |
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@nikol, I think the existence of something like Silvergate doesn't make you wrong, the lack of features in the space is pretty severe.
Take something as simple as putting a spread on with both legs at the same venue. Long 1 BTC perpetual short 1 BTC March Contract.
I am not aware of a single major crypto-derivatives exchange that will treat this position differently than independently margined positions in both legs. A third party "prime" that will provide leverage for this with awareness of the hedged nature is even more unlikely.
On second thought, you should be able to have these features with the BTC contracts at CME, but this is a tiny fraction of global liquidity and their margin requirements and fee structure are rough comparing to the less regulated venues.
So in general capital requirements to get anything interesting done go up, but this is alleviated by
1. exchanges providing huge leverage to start with - many up to 100x. caveat: this operates like a casino where the auto-liquidator is taking the leftovers as juice before your blowup point
2. bigger edge existing
3. much lower fixed infra costs than in traditional markets
It is extremely shady though, definitely don't get involved and compete :))) |
"Nothing is more dangerous to the adventurous spirit within a man than a secure future." |
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rickyvic
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I think the main consideration for pb is that you need some kind of central clearing since when you aggregate prices from different exchanges you want to net all your positions at the end of the day unless you want to send cash around which takes time and operational efforts.
Is there any other way to net with different exchanges (I dont think so but my blockchain knowledge is poor)
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"amicus Plato sed magis amica Veritas" |
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nikol
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Grisha
Your example can be perfectly executed at Deribit. Perhaps not, if you are common customer. However, they are open to arrange right risk measure for this strategy. Talk to them. :)
https://insights.deribit.com/industry/spread-trading-on-crypto/
Note, that US citizens are in forbiden list there.
PS. I have technically designed this specific pair arb, somehow cannot scale :( Amsterdam HF funds make the market there. Engine itself is near London. At intensive move, like on Monday, engine gets stuck. They try to solve problem (it was my problem too), but their volumes and num.of customers is growing faster than they can cope. (Ad here: If you want I can consult on this).
PPS. Wirex (London, near Liverpool st.) has started up by bridging between venues.
PPPS. Nobody forces you to trade x100, except Bitmex, who give you huge discount if you leverage. Simplest solution to that is to trade 1/100th of own capital to offset the leverage. In this way you can manage the risk. |
... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c) |
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Patrik
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As most of the exchanges operate on stablecoins it's not as difficult to send "cash" around as one would normally think of it (incl in the middle of the night on a Saturday). Shuffling USDC and USDT around doesn't exactly make you long to interact with swift wires..
My impression is that liquidity providing firms are operating pretty efficiently in the space already. For spot trading there's always a fallback to perform the required transfers yourself, for derivatives it is more complex but people seem to cope pretty well at decent scale judging by the volumes (after discounting exchanges with fake volumes etc).
Other related stuff:
https://xmargin.io/
https://www.fireblocks.com/platforms/digital-asset-transfer-network/ |
Capital Structure Demolition LLC  |
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rickyvic
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@patrik much appreciated. One of these services might make things easier.
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"amicus Plato sed magis amica Veritas" |
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rickyvic
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Ok it seems that services like silvergate or similar just use technology (fireblocks) to move cash around and settle.
So a PB needs to just use that service assuming that there is a need to continuously settle between counterparties, they put up the capital if there is an imbalance and it takes longer to move the cash.
My take is that you could potentially avoid the cost of having a PB if you can effectively do this yourself.
This is what I think so far. Will go deeper in the next few weeks. |
"amicus Plato sed magis amica Veritas" |
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nikol
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@rickyvic
This is what I said initially - crypto-industry has all necessary blocks.
Maybe, after doing it yourself, you can sell this service to others (if demand is there), but still entry barrier is low. |
... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c) |
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rickyvic
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| Total Posts: 250 |
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| Yep thanks guys, this was helpful |
"amicus Plato sed magis amica Veritas" |
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| We (docs.coinapi.io) have the EMS API to different exchanges as a self-hosted product (and soon also cloud-hosted) that could be used to trade using a single API, but it does not have moving cash around functionality; we could have that if there will be demand then basically you could have self-hosted PB. |
First Commander of the USS Enterprise |
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| @svisstack: I guess normalising access to crypto exchanges is a great thing to have tho the real benefit of prime brokerage would of course be to be able to cross-margin across exchanges. In that sense you'd have to not only allow for deposits/ withdrawals from/ to exchanges but sufficient collateral with multiple exchanges (and possibly instant transfers as far as your end users are concerned). I don't think that's your primary business activity as a feed/ execution provider. |
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@campo_de_ems: Yes, of course, being a PB is completely not our core business nor any product.
Wanted to point out that we have software solutions already that could be used to build the PB-like functionality. We do not deposit with the exchanges, always the customer in the self-hosted and cloud-hosted version of the EMS.
In my mind dissecting the problem:
(a) normalized trade api to the exchanges - already have that in self-hosted and future also a cloud-hosted version
(b) normalized withdraw/deposit + possibly algorithms to support that process - not at the moment, but could be in the future releases
(c) managing transfers using (b) or directly with the exchanges - on the PB side
(d) sufficient collateral - on the PB side
(e) user interface for the end-customer - on the PB side
(f) API interface for the end-customer - on the PB side, but a subset of (a) could be used and provided to the customer.
We have Tagomi in our customer base, but not sure if they have a possibility to cross-marginate or full PB functionality, worth checking their services for sure if looking for a PB as they have a pedigree.
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First Commander of the USS Enterprise |
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rickyvic
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@svisstack I think integration with one of these cash transfer services api is what you want.
I think the main issue though in your case is having a reliable market data and order routing solution with decent latency.
I would put all my efforts into that and having clean historical data.
It is hard in general to trust companies to use their infrastructure especially with the buggy apis in the crypto world (not the fix connectors maybe but the rest/websocket apis are really scary).
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"amicus Plato sed magis amica Veritas" |
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nikol
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just came across
https://primebroker.coinbase.com/
https://primebroker.coinbase.com/institutional-investors |
... What is a man
If his chief good and market of his time
Be but to sleep and feed? (c) |
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@rickyvic: Thanks for the feedback.
It's true that they have buggy API, but most of the issues can be resolved as we heavily testing the integrations incl. as high freq trading as possible and measuring latencies and other core metrics which we also expose using Prometheus. FIX APIs also have their own perks, it's our preferred method but somethimes direct communication with the exchange devs and hacks are required to cover all order types ;-) etc
What you described are already our target and we will internally track these integrations possibilities with cash transfer apps, from my perspective I'm not convinced in the long-term that this will survive having in mind the possible decentralized direction of the whole industry. |
First Commander of the USS Enterprise |
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rickyvic
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@svisstack I hear you thanks... I will be asking more details soon
Regarding the integration, having spoken to fireblocks it seems that they are building an ecosystem where all counterparties are connected and can exchange collateral in realtime within the platform (this can be automated connecting to their api) and they have a secure (so they say) storage platform, which is also insured.
Not sure if it will survive but I think it solves the problems of a trading firm entering the crypto market or an institutional investor not looking to manage this stuff too much.
Just reporting but not an expert. |
"amicus Plato sed magis amica Veritas" |
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https://bequant.pro/
This is one of the few I have come across |
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