Ten years into the crypto revolution and markets are still considered immature. Where traders on mainstream platforms have access to unlimited amounts of liquidity and a vast array of advanced tools to help facilitate their transactions, cryptocurrency traders still function in a sort of technological ‘stone age.’
If you want to trade on multiple exchanges, you have to create multiple accounts with different login credentials. Traders have to deal with separate fees and separate slippage, cutting into profits more and more. There is also the counterparty risk which gets multiplied with every exchange you interact with.
While these problems might not bother small retail traders, it creates tremendous headaches for those looking to trade with larger sums of capital. This is one of many reasons that bigger financial players have yet to enter the cryptocurrency sector in a significant way.
Thankfully, there is a solution coming. One which allows traders to interact with a single entity and reduce, or eliminate, the hassles and risks associated with trading across multiple exchanges.
How A Single Point of Access Improves Trading
Being able to have a single point of access (SPA) provides traders with the resources they need to function effectively and be successful. While the benefits of trading through a SPA are extensive, here we will focus on three in particular.
1. Ability to Interact with Additional Exchanges
A single point of access gives traders access to multiple exchanges. Why would anyone want such a thing?
The simplest reason is liquidity. In markets as shallow as cryptocurrency, it’s just not possible to transact with very large amounts of capital. It becomes necessary to buy/sell coins on several different exchanges simultaneously.
Not all exchanges list all coins/tokens or all trading pairs that exist. The token you want may be absent on one exchange, listed in a BTC pair on another exchange, or possibly in a stablecoin pair such as USDC on yet another exchange. If you wanted to trade this hypothetical coin for a stablecoin using fiat, you would have to:
- Convert fiat to BTC,
- Move the BTC to the exchange with your desired coin,
- Make a trade,
- Move the new coin to another exchange,
- Make another trade
After undergoing these five steps, in which you have racked up hefty fees (and a massive headache), you would finally have finished trading the coin you wanted in the stablecoin pair you were looking for.
2. Reduced Counterparty Risk
Trading anything on any platform comes with some kind of counterparty risk. To some extent, you always have to trust your funds in someone else’s hands for a certain length of time. This results in the possibility of something going wrong on part of the party holding your funds.
The term “counterparty risk” refers to the risk of someone defaulting on their debt owed to you. In the case of cryptocurrency, some exchanges have mismanaged user funds in the past, resulting in traders losing most or all of their coins. The users in such cases fell victim to the counterparty risk inherent in holding coins on an exchange.
But going through the process described above multiplies counterparty risk to a large and unnecessary degree. Instead of being concerned with the potential of something going wrong at a single point of failure, you now have to endure risk at least three times over.
3. Reduced Slippage and Fees
As if all the problems described above weren’t enough, you are also losing chunks of capital during this long and drawn out process. Every exchange you use charges its own fees, creates its own slippage (the small losses that result from large buy/sell orders being executed in multiple trades at different prices), and requires a network transaction or miner fee for moving crypto from one wallet to another.
This can result in a trader incurring losses at the end of the day even if they make a profitable trade.
Being able to use a single point of access allows traders to keep things simple – one account, one trade, one simple and clear fee.
The Future of Crypto Trading Is About To Get Much Simpler
Multiple companies are currently developing a solution, but none has achieved industry-wide success yet. Currently, XTRD is the closest trading company to achieving a single point of access for traders. Very soon, it is likely that the industry will coalesce around a kind of cross-exchange trading mechanism that other financial markets have used for decades. This instrument will allow for improved transactionality, which can lead to not only the maturation of the industry, but to mainstream adoption of blockchain technologies.