At the G20 Summit in February, the International Monetary Fund (IMF) discussed the possibility of "banning private cryptocurrencies" as one of the potential solutions to the dilemma of restructuring global debt. It has recently concluded that more is needed to resolve the relevant issues. On the other hand, the United States Securities and Exchange Commission (SEC) is dead set on regulating crypto via brute force.
The Securities and Exchange Commission's (SEC) approach to cryptocurrency has resulted in recent lawsuits targeting Binance and Coinbase. It makes the already mounting displeasure felt by industry stakeholders even worse. It is neither profitable nor fair to stifle the development of new technologies. Given the United States' usually progressive past, it is not unreasonable to anticipate that the country will prioritize encouraging innovation to find solutions to existing issues.
One of the most critical issues the SEC makes in its case against cryptocurrencies is that they are unstable. It is a significant source of discomfort for young cryptocurrency markets, which are already struggling with sub-optimal liquidity access and extreme volatility. On the other hand, there is a quick development of long-term solutions that leverage the ongoing progress of AI. The regulatory bodies need to acknowledge the constructive efforts and create an atmosphere that will assist those efforts in reaching their full potential.
The blame game is counterproductive
Recently, there has been a lot of smear campaigning between proponents and opponents of cryptocurrency. The blame game has been played in some form by virtually everyone, including the project owners, regulatory officials, and senators. But one must pause to consider whether or not it is productive in any way.
To be honest, no. While authorities need to adjust their attitude toward emerging technologies, innovators must recognize and accept crypto's limitations to swiftly find solutions that circumvent them. In addition to scalability and composability, this situation has three primary challenges: inefficient order execution and fragmented liquidity.
There is a total value locked up in the protocols of the blockchain ecosystem that exceeds 64 billion dollars. Similarly, despite the gloomy feelings that have persisted for over a year, the total market capitalization of cryptocurrencies has surpassed one trillion dollars. Despite this, investors are left holding the bag whenever a venture, such as LUNA or FTX, is unsuccessful.
In addition, institutional investors and large traders frequently experience significant slippage while trading cryptocurrency. This, together with the difficulty of exiting positions promptly, results from liquidity being compartmentalized into silos and latency in execution. It makes the goal of widespread cryptocurrency adoption more challenging and provides regulators with another justification to continue their assault in the name of protecting investors.
It is ironic that ensuring the safety of investors and improving their confidence is essential to the success of crypto over the long term. This demonstrates yet another degree of engagement between innovators and regulators through various suitable activities. The actions taken by regulators are still unknown, but the cryptocurrency sector is moving quickly to implement workable alternatives.
Aggregation facilitates liquidity access
Legacy financial systems allow high-frequency trading through procedures that provide deep liquidity availability even when severe stress exists. These kinds of frameworks are also quite advantageous for crypto market participants. It is a highly inefficient use of resources to allow so much accessible liquidity to be held in silos where it is not being put to good use.
Cryptocurrency traders are redeemed by novel liquidity aggregators powered by intelligent order routing techniques. Instead of settling deals against a single exchange or trading platform, they trade against numerous liquidity pockets to provide the most excellent possible execution. This contributes to an even more significant improvement in price discovery and helps reduce slippage for larger trades.
In addition to improving the efficiency of transaction execution daily, liquidity aggregators position cryptocurrency investors to respond more effectively to unexpected market shifts known as black swan occurrences. These systems do not obtain liquidity from individual businesses; they access the entire ecosystem. As a result, they can provide more secure exit points in an easy-to-use manner.
In light of the preceding, aggregation is of utmost significance for Tier-2 and Tier-3 exchanges, which sometimes lack the necessary liquidity to support high-volume trades. This is true for centralized and decentralized exchanges (CEXs and DEXs, respectively), although knowledgeable liquidity aggregators can cater to either type. Nevertheless, achieving stability in the cryptocurrency market just through liquidity accumulation is impossible.
AI provides stability through predictive analysis
To reach their full potential, event-based, low-latency, innovative aggregator protocols must be able to correctly predict market trends. This has been a significant difficulty for crypto trading systems thus far, explaining the considerable impact of volatility on most investors.
The rapid growth of AI, on the other hand, is causing a shift in the current climate. Liquidity aggregators that use AI become more intelligent and can perform cutting-edge predictive analysis. This is made feasible by hybrid AI models that use deep learning, neural networks, machine learning, and other forms of knowledge, among other things. By processing massive unstructured data sets in a way specific to crypto markets, these systems can find patterns that conventional methods cannot.
Although AI-powered liquidity aggregators are still relatively innovative, they can now forecast market moves up to 20 seconds in the future with an accuracy of at least 90%. These numbers will improve due to additional training, starting a positive feedback loop to increase adoption. That is the first step towards a more secure future for high-frequency cryptocurrency trading.
The cryptocurrency markets will become more stable as slippage and uncertainty are reduced, deeper liquidity access is achieved, and efficient predictive analysis is carried out. The ecosystem will be safe for investors, so regulators won't worry about safeguarding them with brute force. Investors will love the secure environment.
The pioneers of crypto are exerting much work to keep their part of the bargain. It is now incumbent upon the government to lend their support to assist in constructing a forward-thinking environment that is beneficial not just for them but also for the industry and the world as a whole.
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