A trading venue’s liquidity represents how easily a trader can use the platform to exchange one asset for another. If a trader sends a market order to buy or sell an asset and the venue can’t find enough buy or sell orders to complete the transaction at a reasonable price, the venue is likely struggling with low liquidity — and the trader is likely to take their future business elsewhere.
Venues that provide adequate liquidity and competitive market pricing tend to experience a rewarding cycle, with traders who find their liquidity needs met, returning for more transactions, which provides liquidity to other traders acting as counterparties. Liquidity can also help lessen the effects of individual transactions on an asset’s marketplace conditions. A venue struggling with low liquidity for a given asset will see a large portion of its order book eaten up by a single transaction. This means that the order will crawl higher up the order book and incur a higher average price (or a lower one for traders trying to sell).
Warren Lorenz is the chief strategy officer of Pipefold — a non-custodial clearinghouse for digital assets that eliminates counterparty risk, liquidity risk and hacking risk, helping institutions to efficiently allocate capital across crypto markets. Warren is also a limited partner at Weave Markets — a digital asset hedge fund — and was the previous managing director of trading operations at Amplify Exchange. As an entrepreneur, Warren has built multiple products that were licensed and sold to hedge funds, proprietary trading offices and family offices.
Aly Madhavji is the managing partner at Blockchain Founders Fund, which invests in and builds top-tier venture startups. He is a limited partner at Loyal VC. Aly consults organizations on emerging technologies, such as INSEAD and the United Nations, on solutions to help alleviate poverty. He is a senior blockchain fellow at INSEAD and was recognized as a “Blockchain 100” Global Leaders of 2019 by Lattice80. Aly has served on various advisory boards, including the University of Toronto’s Governing Council.
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