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Liquidity – The Lifeblood of the Crypto Market


  • Liquidity is the lifeblood of the crypto market. It lowers investing risks and more importantly, aids in developing an exit plan, making it easier to exchange or sell your assets.
  • Liquidity  can be aggregated across all asset types including spot, futures, derivatives, synthetics, STOs, and tokenized assets
  • The purpose of liquidity aggregation is to maintain the best spreads and allow users to efficiently trade without creating a negative price impact
  • Cryptocurrency trading venues wanting to access liquidity can do so by establishing a connection between the aggregator and the company to access the aggregated liquidity

The term liquidity has various financial meanings that are often used interchangeably and can be very confusing; it could refer to the ease of how an asset is exchanged for another without affecting the market price, how much liquidity a company holds, aggregating liquidity from different sources, or providing access to liquidity.

Liquidity may also determine whether exchanges allow fiat-to-crypto deals to be completed immediately and with no price slippage. Liquidity is typically connected with low transaction costs and fast execution, tackling issues of liquidity fragmentation and wide spreads.

This article will delve into the importance and different aspects of liquidity and how they’re used in context. It’s important to understand the differences in relation to liquidity aggregators as the use of the term liquidity can be vague when used alone, so here is a little context:

Why Is Market Liquidity So Important?

Market liquidity is essential for efficient market operation. Financial market liquidity enables the efficient allocation of economic resources by allowing for the productive deployment of capital and risk, the correct collection and transmission of issuer-specific data, and the efficacy of monetary policy and financial stability.

Market liquidity is crucial for several reasons, of which, the most essential is that it affects how quickly investors can initiate and close positions. In addition, since there is always someone prepared to take the opposing side of a particular position, a liquid market is often linked with lower risk. This might draw in speculators and investors, further enhancing the market’s favorable conditions. 

As the crypto market is highly volatile, prices across different trading platforms can differ, also known as price disparity. When a market is crowded with illiquid assets, price swings are more frequent and violent. Sometimes it’s because powerful but unscrupulous parties manipulate prices in their favor against retail investors and traders. In a highly liquid and free market, setting prices forces both buyers and sellers to compete against one another to achieve their aims. This equilibrium ensures prices stay at fair rates, keeping a healthy trading environment for participants.

Liquidity Aggregation

Liquidity fragmentation is a major issue in the blockchain industry and is also the cause of the proliferation of liquidity aggregators. 

Currently, the price of a token at any point in time could be different across exchanges because a user would have to access each exchange/platform separately to see the price. Liquidity aggregators enable participants to access streaming prices from various liquidity providers/pools at the same time. The concept is that aggregators reach out to different liquidity providers and bring them all together, so when a user makes a transaction, they have the access to the whole pool. 

Liquidity aggregators combine orders from integrated exchanges and connect institutions and retail investors through the aggregation infrastructure where these orders can be routed and executed. 

Liquidity aggregators have the chance to capitalize on the multi-trillion-dollar tokenized market volume potential across different types of liquidity: 

  • Spot
  • Futures
  • Derivatives
  • Synthetics
  • STOs
  • Tokenized assets (such as gold, stocks, and property)

and more, necessitating the need for exchanges to provide interoperable cross-chain liquidity. Liquidity aggregation resolves this issue, benefiting DeFi, CeFi, NFTs, and other tokenized assets across retail and institutional verticals. 

Providing Access To Liquidity

Liquidity aggregators can provide access to its liquidity. Liquidity aggregators are healthy for the ecosystem and are not seen as competitors to exchanges, but more the solution to a multi-trillion-dollar market problem. Tier-one exchanges support liquidity aggregators and encourage them to aggregate their liquidity as it helps them maintain the best spreads and allows users to efficiently trade extensive holdings without creating a negative price impact. 

For example, an exchange like Binance has vast liquidity and therefore provides an excellent experience for its customers. But, on the other hand, small exchanges suffer from high spreads, high fees, and high latency due to thin liquidity – and their customers also suffer a bad experience, but are still on there for one reason or another. 

A smaller exchange can also be aggregated, but it still does not solve the customer experience problem, where liquidity aggregators can support by providing access to their liquidity. The solution is sophisticated and would need a protocol between aggregator and exchange seeking liquidity to access the aggregator’s global order book for various assets. 

One of the solutions FLUID will provide is access to pooled liquidity for companies of all sizes – institutional or not.

Factors To Consider When Choosing A Liquidity Aggregator

From the industry perspective, liquidity aggregators are the remedy for liquidity fragmentation. Less fragmented liquidity creates a healthy trading environment with less room for market manipulation. 

The following components need to be evaluated while choosing a liquidity aggregator: 

  • Market Depth: Market depth indicates how liquid and deep a specific currency is. The market depth is determined by the number of buy and sell orders placed at each price level.
  • Trade Executions: A liquidity aggregator must be able to deliver the best trade executions with no re-quotes or slippage, especially during periods of high-impact market news.
  • Regulatory Compliance: The regulatory landscape for decentralized finance has been evolving rapidly. Along with industry growth, regulators want to protect investors and ensure fairness in the market. Therefore, a regulatory framework is required to protect consumers, safeguard assets, and establish standards for entry into the industry.
  • Pricing: A liquidity aggregator’s price offering should include reasonable spreads, ultra-low fees, and no swaps.
  • Dashboard: A liquidity aggregator should be able to supply clients with steady and dependable data feeds, including real-time pricing from all key exchanges. Any delays in the supply of pricing data may result in gaps.
  • Reporting Standards: To meet regulatory requirements, a liquidity aggregator should be able to provide an automated and robust reporting system. Trade reports, bridge reporting, swaps and rollover reporting, and order book access are common reports.

FLUID’s Technology Framework

FLUID uses an MPC wallet infrastructure and leverages decades of experience in AI-based quantitative trading, data security, and governance to provide a highly efficient throughput order routing protocol for liquidity aggregation that will be low-latent, cost-effective, and with no counterparty risk.

FLUID will aggregate liquidity in a permissionless manner from exchanges by accessing their liquidity through APIs and creating a global order book that uses AI quant-based models to mimic and predict the price of a certain token at any point in time to fill orders. Becoming the future of liquidity aggregation will resolve this issue, benefiting DeFi, CeFi, NFTs, and other tokenized assets across retail and institutional verticals. 

FLUID aims to tackle inefficiencies caused by fragmented liquidity – a multi-trillion dollar market problem in the virtual assets space – and will enhance liquidity across spot trading, derivatives, futures, synthetics, tokenized assets, and security token offerings.