ADVANTAGES OF DARK POOLS TO THE CRYPTOCURRENCY ECOSYSTEM

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I recently talked about the dark pool about some of the key and significant disadvantages of the dark pool to the cryptocurrency ecosystem and before I started I gave an introduction paragraph that went somehow like this;

The introduction and creation of cryptocurrency has basically blown the mind of many I know it blew my own mind when I heard of a digital currency that operates on decentralization and has prices that can rise so high or even go very low, basically the introduction and creation of cryptocurrency has also done more than blow minds, it has also changed and revolutionized the way people view and think of money and the financial systems, financial transactions with cryptocurrency offers transparency, decentralization, and efficiency.

The dark pool can be described as being private trading platforms where large volumes of assets are traded in secret in the sense that the records of transactions or the assets bought and sold there are not immediately made in known to the public, dark pools offer many benefits such as reducing market impact for large trades, their presence in the crypto space also introduces numerous disadvantages and advantages too and that is why in this post I am going to be explaining some of the many key advantages of dark pools in the cryptocurrency ecosystem.

PROVISION OF LIQUIDITY

One of the significant and important advantages and benefits of the creation and introduction of dark pools in the cryptocurrency ecosystem is that they help and serve as liquidity providers, that is they facilitate the provision of liquidity in the cryptocurrency market, furthermore they do provide this liquidity without first causing any disruption or major changes to the prices of tokens or assets in cryptocurrency market, as you all know liquidity is very important to cryptocurrency market let me tell you all why.

Liquidity can simply be described and said to be the degree or measure of how easy it is to convert a digital token or cryptocurrency asset to cash, the higher the liquidity the easier it will be to convert the cryptocurrency asset to cash and vice versa with this being said now let us consider that in traditional public exchanges, executing large or voluminous buy or sell orders can lead to significant price movements due to slippage that is, a visible change that is noticeable in the order book, this slippage is bad traders who execute large transactions at certain prices they consider favorable.

Therefore, dark pool provides and facilitates liquidity by basically allowing traders and big time investors to carry out their voluminous, sizable and large scale transactions off chain and in private settings where this transactions will have no effect on the prices of that cryptocurrency asset and token on the traditional cryptocurrency market, this liquidity is particularly important for big time traders, investors and other individuals who operate and execute transactions with substantial and very big capital and require seamless execution of their trades and transactions.

FACILITATES PRIVACY

Now moving on to the next advantage of dark pools, the second advantage of the creation and introduction of dark pool to the cryptocurrency ecosystem is that dark pools operate and function in kind of way and pattern that basically facilitates privacy, anonymity and also offer and provide their users hundred percent confidentiality, unlike the normal or traditional cryptocurrency market where the blockchain technology makes sure that all records are transparent although secure and is available to the general public and fellow cryptocurrency traders.

Dark pools on the other hand does not do this, they do not make order books and the transaction history of their users and participants and of the cryptocurrency market visible to the general public and this is privacy, secrecy and lack of transparency as we have seen in my last post can be a disadvantage but it can also be of advantage because it prevents a situation where by other market participants will exploit and take advantage of certain information about large pending orders to make profit for themselves.

Dark pool basically prevents this and addresses this issue by concealing and keeping private the details of the trades and transactions that are done, carried out and executed in the dark pool, including the identities of participants, the size of orders, and the prices at which trades are executed, therefore by being u transparent dark pools mitigate the risk of information leakage, as a result creating a secure environment where traders and other market participants can execute trades and take positions with confidence and equal advantage.

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FACILITATES PRICE EFFICIENCY

Facilitating price efficiency is basically the next significant and important advantage and benefit of the creation and introduction of dark pools in the cryptocurrency market that I will be explaining and discussing in this post, for those that don't know, price efficiency can basically be described as how much information the price of a particular digital token and cryptocurrency asset can tell or can reflect about the token and cryptocurrency, dark pools therefore by their existence alone indirectly influences price discovery in the traditional cryptocurrency market and as result, it helps facilitate price efficiency.

Basically, when large, voluminous and sizable orders, trades and transactions are executed in dark pools, they do not immediately impact the supply and demand dynamics on the order book of the traditional or public cryptocurrency market as a result they basically prevent artificial or the triggering of price spikes or crashes that could occur if those large scale and voluminous orders and transactions were executed and carried out openly.

Therefore over time, the aggregated data from dark pool transactions can feed into the broader market, that is the public and traditional cryptocurrency market and ecosystem and as a result it contributes to the record of a more accurate reflection of the supply and demand for a given cryptocurrency asset and token in the cryptocurrency market as a result it will lead to the sustainability and long term growth of the cryptocurrency market.

REDUCED COST OF TRADING

The last advantage of the creation and introduction of dark pools is basically that they are able, they have the potential to reduce trading costs for the participants and user of the cryptocurrency market and ecosystem, basically in the public and traditional cryptocurrency exchanges, large trades often incur higher fees as a result of the tiered fee structures and the need for multiple orders to minimize market impact not only that, traders and users of the cryptocurrency market faces additional costs as a result of slippage and unfavorable price movements.

However, dark pools prevents this by basically offering and providing a more cost effective means and alternative by basically allowing large orders to be matched directly between buyers and sellers without the need for any intermediaries, therefore the introduction of peer to peer means of trading and transactions basically helps to eliminate the need to break orders into smaller pieces and reduces the overall transaction costs that is imposed on the cryptocurrency users.

CONCLUSION

In conclusion, dark pools offers and provides many advantages and benefits to the cryptocurrency ecosystem and help improve and maintain its methods of operation and functioning, if you were paying attention, I listed and discussed four advantages in which the creation and introduction of dark pools provides and facilitates in the cryptocurrency ecosystem, one is providing liquidity without market disruptions, another is ensuring privacy and confidentiality, another is contributing to price efficiency and lastly is reducing trading costs.