Steemit Crypto Academy Contest / S11W3 - Dark Pools In Crypto

"Dark Pools In Cryptocurrencies"! It was initially strange to me but I am passionate about learning new things. I had to learn and here, I present to you what I have been able to learn about the subject using the tips of the contest.

Discuss in your own words what Dark Pools are in cryptocurrency. And explain how it works?

Dark pools are exchange platforms where securities and other forms of assets in trading investment are done out. Like its name implies, it is not open to the public and transactions done there are not accessible to the public.

This exchange platform is specifically designed for investors who carry out large volumes of transactions referred to as block trades and do not want it to affect the entire market. This is because when large volumes are introduced into the market, it causes much volatility in price movement.

These investors may be institutions or private whales that trade with large sums of money. Apart from this too, these exchanges provide no details about what goes on with their investors, so it is entirely out of public consumption. However secretive they tend to be, they are legally recognized and regulated by the Securities and Exchange commission.

How does it work?

Like I said earlier, dark pools are for large volume investors to buy and sell their assets without the knowledge of the entire market. When an investor "A" places a large sell order of a particular asset, another large investor then places a buy order for that same stock at a more reasonable price. This transaction is carried out without the public eye.

This transaction will only be made known later at the end of the day.

Let us now imagine if the transaction was in an open exchange, and retail traders see that buy order, the market price direction will automatically change to a buy from sell, because all traders having seen the large buy in the order book, will immediately change to buy positions. This will in effect drastically reduce the efficiency and dependability of the market.

So it is easier to find a large buyer or seller in the dark pool exchange that will buy in blocks, at a very good price than in the public exchanges.

Do all crypto exchanges offer dark pools? If yes, explain how does its dark pool work? What tokens are supported? Are there any fees attracted? And What are the requirements to get involved in dark pools trading on the platform?

I am of the opinion that most if not all crypto exchanges offer dark pools. This is because there are large transactions that take place in those exchanges that skip the public eye, which also slightly influences price movement there.

I will be using Kraken dark pool as an example.

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Only orders within the dark pool are matched. The investor cannot see the order book, since it is not made visible to them and they are allowed to place limit orders not instant market execution.

Another unique thing about this dark pool is that it does not have margin trading because of the heavy volume involved. The fees are the same as well, so it will be difficult to identify the buyer or the seller.

The tokens supported are mostly BTC and ETH pairs. For example:

BTC/USD, BTC/CAD, BTC/GBP, BTC/JPY and BTC/EUR for BTC pairs.

For ETH pairs we have

ETH/USD, ETH/CAD, ETH/GBP, ETH/EUR and ETH/JPY.

then we also have a pair of BTC/ETH.

There are fees attached to trades in the dark pool. They are within the range of 0.20% to 0.36%, this is way much higher than trading fees in their normal exchange. However, the higher the trading volume, the lower the fees.

The requirements for participating in the dark pool are also provided.

1. There will be a minimum order of not less than 100k USD for BTC pairs and 50k USD for ETH pairs.

2. The investor must be verified to the Pro Status that is the most advanced verification status in their system.

3. All order to be processed must be limit orders.

These requirements may be slightly different from other cryptocurrency exchange platforms.

For the chosen dark pools, show how to perform block trading on the platform. (Screenshots required).

Earlier, I said that there are requirements before a person can be allowed to trade on the dark pool. There is a minimum amount and secondly the individual is supposed to attain thepro Verification status.

Without that, I cannot be allowed to enter the page and demonstrate doing so with the screenshot.

Moreover, the dark pool site I mentioned is not currently available.

However, it is like we do in our normal spot trading,

Select the pair of BTC or ETH we want to trade, ensure that we have the minimum amount we want to trade as stated above.
Place your limit order and leave the trade to execute itself once it gets a matching opposite order.

Explain the decentralized dark pools? State a decentralized dark pool in cryptocurrency and discuss it. How it works?

These are dark pools which are runed on a decentralized platform. It is operated by decentralized exchanges and this applies the principle of decentralization in its operation.

Decentralized dark pools employ certain modules in carrying out its transaction. It makes use of peer to peer trading and smart contracts in its execution.

It provides its users with additional privacy since there is nothing like verification of identity, which is done in centralized exchanges. The use of smart contracts nullifies the need for an intermediary. Investors also have better control over their assets.

Renegade dark pool is an example of a decentralized dark pool like uniswap. The individual investors are the ones that maintain the balances and order books.

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To initiate a trade, the investor will have to deposit the asset he wants to trade with, place the trade whether a buy or sell, have knowledge of their old wallet and new wallet. Then they are also required to complete 3 actions.

• The first is to commit to their new wallet.

• Secondly, there should be two signers or validators to the old wallets

• and lastly a zero-knowledge proof.

The smart contracts are built in such a way that all these commitments above are verified to be true, to ensure that the trader does not have prior knowledge of order books and therefore cheat on the other traders.

Compare a centralized crypto exchange dark pools with a decentralized dark pool. What are the distinctive differences?

They have some basic differences

SN	Decentralized dark pool	centralized dark pool
1	No identity verification	Requires identity verification
2	there is no one controlling the system	the system is controlled.
3	there is no absolute authority	Some one determines what happens
4	No presence of an intermediary	presence of an intermediary
5	transaction fees are lower because of no middle man payment	fees are high due to the presence of middle men
6	free entry for everyone	entry is determined by the person in authority.
7	It is difficult to steal investors funds because of using smart contracts	very easy to run away with people's hard earned money.

What are the advantages and disadvantages of the Dark pools in Cryptocurrency?

Advantages of dark Dark pools in crypto currency.

• It provides a secure platform for large volume investors to trade without being noticed.

• It provides a measure of price stability in the crypto market, if not, we would have been experiencing high volatility in the market.

• It provides an environment uniquely designed to suit the traders needs.

• It makes it possible for retail traders to view the public exchanges as efficient and reliable.

• It provides better pricing opportunities for their assets whether they are buying and selling.

• It reduces the time lag needed to consumate a trade unlike the public exchanges.

Disadvantages of dark pool in crypto currency

• They are not transparent in its operation, this gives a cause for concern.

• It is operated with little or no oversight which may lead to the presence of unfair business practices.

• There is less regulatory control for dark pool operation, so it is susceptible to fraud.

• Retail traders cannot be allowed to join.

• Some investors might have knowledge of certain information which might lead to unethical behaviours.

Conclusion

It has been a study time making research and reading about this subject. I knew a little about it but now my knowledge has definitely increased.