Improving overall liquidity across cryptocurrency markets will be a major undertaking. A lot of currencies do not have access to fiat currency pairs or are limited to just a few exchanges. Liquid.com is a platform which can seemingly solve this problem, thanks to its rather unique approach to liquidity.
The Liquid Plan of Action
As outlined by the team, the main purpose is to resolve issues when it comes to cryptocurrency market liquidity. This will mainly pertain to cryptocurrencies which can already be traded against the EUR or USD, although its functionality may be expanded upon in the long run. By pairing different fiat currency orders on both the buy and sell side, an interesting solution can be created in the coming months.
To put this in perspective. Liquid will ensure buyers and seller are matched across liquidity pools. The concept envisions users buy crypto for either EUR or USD and have that matched with a sell order for the opposite currency. Liquid will, allegedly, be able to recognize these two trades being submitted and settle these orders despite the lack of a common fiat currency pair.
Instead, it will match the orders using crypto/BTC and EUR/USD pairings. The Liquid platform will send a request to the markets to sell cryptocurrency and buy Bitcoin. At the same time, the platform sends a ping to FX markets to exchange between USD and EUR. As such, both types of trades can be settled in one go despite being completely different from one another.
Although this is just one example, the concept can have major ramifications for the cryptocurrency industry as a whole. This will also help address with arbitrage volatility, as the spreads between different exchanges should become a lot tighter with cross-platform liquidity sourcing. Whether or not this idea is viable and can be commercialized, is a different matter altogether.
It would be good to find solutions which can improve overall market liquidity. As of right now, the US Dollar is the dominant fiat currency across most markets. Even so, it can take a while for orders to fill up. By actively sourcing liquidity from other pairs and platforms, Liquid can improve the overall trading experience for users. How this will affect overall market volatility, is difficult to gauge. It seems unlikely this will lead to less volatile markets, although that isn’t necessarily a bad thing.