Hey CoinFi Fans,
In this update, we’ll be taking a look back at the CoinFi Whitepaper and our road ahead through crypto winter.
A Look Back At The CoinFi Whitepaper
Back when we published the CoinFi whitepaper in October 2017, here is what we had to say about our business model:
At the time, we saw a market driven by massive retail speculation. In the long-term, we saw institutional traders as the primary market for our platform.
That is where we stand today. We saw a bubble come and go, and with the bubble burst, we saw most of the retail speculators exit crypto.
While there hasn’t been, and almost certainly won’t be, a sudden massive influx of institutional money flooding into the space (one of the main narratives that helped fuel the bubble), we have seen institutional trading steadily increase as rampant retail speculation has died down.
How Did This Impact CoinFi?
In the initial whitepaper, we dedicated a large section to trading signals (a beta of which we released in Oct 2018), as well as a large section to institutional grade trading algorithms.
We saw a massive opportunity to provide trading algos that helped high volume buyers and sellers minimize trading costs and keep more of their returns.
In mid 2018, we hired a team to work on trading algo development. We haven’t given their work much coverage during our monthly updates, as we mainly provided updates on the products we were building to serve the retail market.
In Dec 2017/Jan 2018 when we completed our token sale, retail interest in crypto was at its all-time peak. As a result, it made sense to focus on products and token economics that primarily served the retail crypto investor.
In Feb 2019, the landscape has changed entirely. Video views for notable crypto influencers have dropped 90-95% since Jan 2018. ETH price is down al 90%, and most ERC-20 tokens have fallen 95-99% from their ATH. So while 90% of the retail crypto investors left the market, the investable assets of those remaining also dropped 90%. Talk about an exponentially shrinking market.
At the same time, while there may not be a flood of institutional capital rushing into the market as many predicted during the recent bubble, slowly and steadily, institutional trading has continued to grow relative to retail trading volume.
Crypto exchanges like Bittrex, Binance, Coinbase, Kraken all recently opened OTC desks to cater to block sized transactions. OTC desks continue to gain trading volume through 2018 even as overall trading volumes shrank.
Exchanges like CoinSuper are refocusing on institutional investors as new regulations come into play. Big names like Fidelity and Intercontinental Exchange entered the market with institutional offerings.
Genesis Capital, which only serves institutional counter-parties, originated $1.1B in crypto loans in 2018, despite launching their service in March 2018. $500M of those loans were originated in Q4 2018 alone, driven largely by traders looking to short or hedge their positions.
Trading Algorithms For Institutional Traders
We’re currently piloting various applications of our trading algos to help project developers, founders, VCs, crypto funds, and family offices trade their crypto assets more cost-effectively.
In the 90’s, if you wanted to unwind a large block of shares, the only way to do it was by calling your friendly broker and trusting that he would unwind it slowly, without leaking the information and giving others the opportunity to jump ahead of you to sell. This was disrupted in the 2000’s with the introduction of best execution algorithms and darkpools.
Nowadays, if large holders of shares are looking to unwind, it’s all done algorithmically with limited market impact.
On the other hand, if you want to sell a large block of crypto, it still looks a lot more like a call to your 90’s broker, instead of the self-serve, low-cost, algorithmically executed approach that equities traders have now come to take for granted. We still see a need for a platform that provides direct access to institutional-grade trading algos in crypto, allowing buyers and sellers to get best execution and buy/sell large orders with minimal market impact.
Fortunately, this is something our algo team has been working on.
Our hypothesis is that we can fill a need in the market by offering direct access to our best execution algos that minimize slippage for traders who are looking to unwind/acquire large positions in less liquid assets.
How Do Our Algorithms Work?
There are two primary aspects to what we’ve developed – taking algo logic that has worked in equities and adapting it for the needs to the crypto market, and developing robust infrastructure to execute trades and maximize cost savings for our customers.
As an example, if a large token holder is looking to unwind a large amount of Cardano (ADA) into USD with minimum market impact and at the best price, the algorithm constantly scans all the exchanges the token is listed on and routes orders, factoring in the need to:
a) Sell at the best price i.e. the cheapest exchange at that time
b) Actively participate in all ADA liquidity pools
c) Mask the seller’s intention to sell a large position
Selling at the best price
ADA is listed in ADA/USDT, ADA/BTC, and ADA/ETH pairs, but our goal is to unwind into USD. When monitoring ADA/USDT, the algo factors in the USDT/USD rate to imply the ADA/USD rate. Similarly for ADA/BTC, the algo factors in the BTC/USD rate in real time to imply the ADA/USD rate. Our execution algo dynamically calculates the net ADA/USD rate across all 3 pairs and route orders to the exchange with the highest ADA/USD rate.
Actively participate in all ADA liquidity pools
When unwinding a large, illiquid position, the algo also has to ensure that it is maximizing participation in the volume traded in the market, as it sells without moving the price. The algo dynamically weighs this factor, in order to balance the need for the best price price with the need to maximize participation in the market.
Mask the seller’s intention
The execution algo also randomizes order size and time of execution so it appears that there are small individual sellers rather than 1 large seller, to avoid frontrunning by market markers and quant algos that are sniffing out the existence of large sellers.
This only scratches the surface of what our execution algorithms are capable of. Automating trade execution minimizes slippage and providing self-serve access passes on cost savings to the seller.
Building custom exchange connectivity to increase reliability and minimize exchange latency
Speed matters for an execution algo, because you want to be able to hit orders bidding in the order book before they’re cancelled and avoid having your orders picked off as the market moves.
While anyone looking to build exchange connectivity can leverage open source libraries, the offerings are still too immature to use out of the box if you want to trade competitively. Custom connectivity is required in order to maintain a speed advantage. Additionally, crypto exchanges simply do not have the robust technical infrastructure that more mature asset classes enjoy – as a result, exchanges frequently drop connections.
For order execution to operate robustly 24/7, extensive workarounds, testing, and maintenance is required to deal with the idiosyncrasies of individual exchanges and ensure maximum uptime.
In order to overcome these challenges, our team has spent a considerable amount of time and effort implementing custom exchange connectivity libraries to handle all the edge cases exchanges can present.
If you want to learn more about trading algorithms, check out episode 9 of The CoinFi Podcast where our team gives a nice little intro to the world of trading algorithms.
In the episode, we also discussed the two primary types of algo trading, how algo trading applies to today’s crypto markets, how high-frequency traders profit from algos, and why high frequency algo trading may actually benefit the average, everyday traders in the long run.
Trading Signals Update
In October 2018, we released a trading signals beta for retail cryptocurrency traders.
Based on initial feedback, we’ve decided to keep signals in beta as we evaluate the project. While we may allocate more resources into developing new signals in the future, at the moment pushing forward our trading algorithms platform is the team’s biggest focus.
While we encourage users to continue staking, as we anticipate incorporating additional token utility going forward, users who participated in the beta and are looking to unstake may do so after 90 days by filing a request here.
Continuing To Offer Free Utility
Our whitepaper stated:
It’s always been part of our plan to deliver a free tier for the CoinFi platform, and we continue to do so.
Since we launched CoinFi News in late 2018, tens of thousands of visitors have come to CoinFi News to follow the latest developments in crypto.
While our original vision was for CoinFi News to offer crypto investors the ability to surface market moving news, the landscape has changed dramatically since the whitepaper was published.
Retail demand for market moving news has dropped in the bear market, the actual impact of news on the crypto markets has diminished significantly. While many types of announcements during the bull run of 2017, from events to partnerships to exchange listings were frequently market moving, these types of news have had minimal market impact during the bear market.
A recent example of this was the listing of XRP on Coinbase. While mere rumors of a Coinbase listing was a classic example of news that moved the market during the bubble, the “Coinbase Effect” has had relatively minor impact in current market conditions.
Still, we’re continuing to make incremental improvements CoinFi News to serve our regular users, like Dark Mode.
If you have suggestions for how we can improve CoinFi News or other free tiers of the CoinFi platform, you can submit your suggestions and feature requests here.
ERC-20 Advanced Token Metrics Are Now Available On The CoinFi Website
Users now can research ERC-20 tokens via a number of unique token metrics only available on CoinFi.com.
While all of these metrics were created as a result of direct feedback from crypto investors, we think the most interesting metric is “Token Supply on Exchange”. When users move their tokens to an exchange, it tends to demonstrate an intent to sell, or at least, higher intent to sell than when tokens are held off exchange.
This data relies on our proprietary, comprehensive database of exchange wallet addresses.
Let us know how you’re using these metrics in your crypto investing, or how we could make them better. We’d love to hear from you!
Team Restructuring
In an update last year, we mentioned being spread too thin across too many projects. We were essentially running two separate teams, one pursuing the development of trading algorithms that primarily benefit institutional traders, and another team focused on data analysis and signals product primarily targeting the retail market.
Like many crypto companies in this bear market, we’ve made the tough decision to reduce the size of our team. Sadly, this meant we had to part ways with a number of highly valued team members who have made valuable contributions to the CoinFi project. It was certainly not an easy decision to make, but a necessary one to continue moving forward during crypto winter.
The clear priority for the remaining team will be to commercialize our trading algo platform. Development on retail products including signals, news, and data analysis will continue, but will be a lower priority.
Going Forward
As a project, we certainly benefited to a certain extent from the ICO bubble. But it is a double edged sword – the bubble also created a consistent expectation of quick returns from a certain segment of the crypto market that expect things to come quick and easy.
But that mania is gone, and it’s not coming back. There needs to be real value creation to back up the hype and this is not something that will happen overnight.
The path forward will be a long one. We’re still in a very nascent market, and there is a lot of work to do. The market changes quickly, and we need to adapt as well. We will continue to provide infrastructure and data to help crypto traders make better trades, but how that looks will continue to evolve.
Reddit co-founder Alexis Ohanian recently stated that crypto winter is good for builders. While a bear market may be painful in the short term, we do believe that this is the time that the long-term infrastructure for the crypto markets will be built.
To those of you who continue to support CoinFi, we appreciate your efforts and the confidence you place in us.
-The CoinFi Team