Steemit Crypto Academy Contest / S11W3 - Dark Pools In Crypto

Hey Steemian friends!

Dark Pools In Crypto is something I haven't heard before. So this pool should be an interesting one to dive in. I hope I will bring some knowledge to you while I too learn something new.

^{Let's swim in Dark Pools In Crypto}

Imagine whales gliding through the vast crypto sea, seeking some private time in its own secluded VIP pool. That is basically what the Dark Pool is. Nobody sees what these whales up to and they can swim smoothly without disturbing the bustling mainstream market. 🌊

Now these metaphorical whales can be an investor or institutes who carry out large volumes of transactions. While conventional exchanges lay your orders bare for all to see, Dark Pools cloak these particular transactions in anonymity and discretion. Because, if the market sees that the volume is high beforehand, it might make unnecessary volatility in the price action. In this scenario, exchangers provide alternative trading systems (ATS) to shield buying and selling activities until the very moment a trade is executed. Thus, such market activities will not impact the market.

• The way it work,

For an example, let's take the Steem order book.

Currently, there exists a sell wall at approximately $0.1 per Steem. If a large-volume sell order at $0.085 is initiated by a whale at this juncture, a fresh sell wall might appear suddenly on the order book, leading hypothetical downward pressure on the price.

However, consider a scenario where this sell wall is not observable, and the volume remains hidden until the transaction completes. In such a case, market participants would lack the immediate capacity to respond immediately, thereby mitigating their ability to instantly influence the price action.

As per my study, dark pools were invented in late 1980s. At the moment there are over 60 dark pools registered with the US Securities and Exchange Commission (SEC).

However to the topic that we are discussing, this is slightly different. Dark Pools In Crypto can be identified as Decentralized Dark Pool and they were first launched in 2015 ^source.

Since then some crypto exchanges offer this service, including those like Binance, Kraken However, many exchanges do not provide dark pools, as their availability varies due to different market natures. Even the Kraken who provided the service is now paused their operation.

• The way Decentralized Dark Pool Trades Work?

First of all these transactions does not get in to the public order books and only matched with Dark Pool orders.

And the next is they only works in Limit orders. Hence, the investor always knows what price they make the execution. What does this mean is that, suppose an instance where an investor intends to purchase a specific cryptocurrency at $10, whereas the prevailing market value rests at $10.50. Now these transaction usually worth millions hence every penny holds significance importance to the transaction. Also when the limit order sets, it mitigates the slippage, and that is one reason for existence of dark pools. However to fill the order investor might have to wait certain time period.

• Supported tokens

Dark Pools exclusively supports currency pairs involving Bitcoin (BTC) and Ethereum (ETH) as follow,

1. Bitcoin pairs,
   Euro (ETH/EUR.d), United States Dollar (ETH/USD.d), Canadian dollar (ETH/CAD.d), pound sterling (ETH/GBP.d), and Japanese yen (ETH/JPY.d).

2. Ethereum pairs,
   Ether for Bitcoin (ETH/BTC.d), Euro (ETH/EUR.d), United States Dollar (ETH/USD.d), Canadian dollar (ETH/CAD.d), pound sterling (ETH/GBP.d), and Japanese yen (ETH/JPY.d).

• Fees involvement

The fees on Kraken platform fluctuate 0.20% to 0.36% depending on the trading volume. Within the Dark Pool, the distinction between being a maker or taker remains undisclosed, leading to the elimination of fee differentiation between the two roles. Instead, a uniform fee structure applies to all participants.

• Requirements to get involved in dark pools trading on the platform

1. Exclusive access to be granted as Pro-level verified clients (Personal or Business).
2. Minimum order size for BTC pairs should be approximately 100k USD.
3. Minimum order size for ETH pairs should be approximately 50k USD.
4. Only limit orders are supported for trades.

I'm sorry I don't have a large volume to trade 😀 Even if I does I have no idea whether I can attain Pro Verification status because as I previously mentioned, the familiar site like Kraken has paused their operation on dark pool. However, if someone interested they can use these platforms to find out more,

https://www.sfox.com

https://www.oasispromarkets.com

In a decentralized dark pool, participants can trade cryptocurrencies or other digital assets directly without the need for a central authority or traditional financial institution. And per my understanding, crypto dark pool trading is pretty much like regular crypto trading.

I will take previously introduced sFOX platform to show how decentralized dark pools works.

^{SFOX’s crypto dark pool source}

sFOX got some fancy order types like Sniper, Polar Bear, and Gorilla designed specifically for the dark pool trades. These smart orders automatically do the heavy lifting for us to take our orders to the best possible exchange. Simply, sFOX will be the well-connected matchmaker for our trades.

These terms denotes to specific Algorithms to get the best possible performs from our trade according to market situations. Hence, identifying which one to choose where is essential.

These terms refer to specific algorithms that work their magic to maximize trade's performance based on what's happening in the market. Hence, identifying which algorithm to go for in different situations is essential.

Comparing these two pools, what we must understand is that centralized crypto exchange dark pools are under the control of centralized exchanges, while decentralized dark pools operate autonomously within a decentralized framework.

• Advantages of dark Dark pools in cryptocurrency.

1. Anonymity: The key factor! The public remains in the "dark" about institutional investors' plans, trade volume and who they are.

2. Reduced Market Impact & Get Better Prices: When nobody knows what's happening, the market won't react to FOMO or FUD. Investors can sidestep this market and possibly get better prices than they would in a lit market.

3. No Slippage: Limited orders are always matched at a pre-set price. Hence, Investors will get the desired price without any slippage.

4. Lower Transaction Costs: Usually broker-dealers operate dark pools and they might give institutional investors lower commission fees compared to a regular lit market because they invest in bulk.

• Disadvantages of dark pool in cryptocurrency

1. Lack of Transparency: Lack of information can be a catch in certain situations. The operator of the pool could have their own traders who might end up trading against the very clients using the pool. Here anonymity basically pulling the card itself.

2. Limited Liquidity: If certain securities aren't frequently traded within the dark pool there could be limits to execute the trade at a reasonable price. Less liquidity will force the traders to wait longer before their trades get filled.

3. Potential for Information Leakage: It is true that everything goes incognito in dark pools, but there's always a possibility that market participants get the info and track how the security's price moves in the future.

4. Regulatory Concerns: Possible market manipulation and insider trading have attracted more watchful eye of regulators. This could add up as a cost for institutional investors.

Thank you.

Peace to all 🙏

^{All the images have been developed by Midjourney / Dall E and photoshoped by me. Proper sourcing has been ensured for any other pictures used in the content.}

Study References,

1. Kraken adds Ether dark pool trading
2. Kraken Launches ETH Dark Pool Trading
3. Decentralized Dark Pool Trading Platforms
4. A Simple Introduction to Dark Pools
5. Introducing the Kraken Dark Pool
6. What Is a Dark Pool?