Hey CoinFi Fans,
The first half of 2019 has flown by, and it’s certainly had its share of ups and downs.
With the crypto market headed upward again, it seems like as good a time as any to share what we’ve been up to over these past few months.
Why We’ve Been Quiet
As we shared in our March update, for the past half a year we’ve pivoted our focus from blockchain analytics and trading signals to building trading technology for institutional and enterprise clients.
Instead of theorizing in a whitepaper about what may or may not work – working with a client provides true validation for whether what you’re building is useful.
With this B2B (business to business) pivot, we’ve been busier than ever with development, but it’s also become much harder for community members to see what we’ve been up to compared to when we were releasing retail trading products.
It’s a tough balance to strike – on the one hand, community members (rightly) want to know what the team is working on. But on the other hand, it’s rare for enterprise and institutional clients in the crypto space to let vendors publicly discuss their work – NDAs are standard even for a preliminary conversation. Check out Clay Collin’s excellent Nomics podcast for more on this – “No we can’t tell you who our clients are”.
Publicly discussing our nascent B2B offerings can also unnecessarily tip our hand to competitors. And ultimately, we’re still seeking product market fit – we’re continuously refining our offerings based on user and client feedback, and as a result we often don’t have news to share, even while we’re working furiously on development.
Nonetheless, we’ll try our best to strike the right balance in the rest of this post.
Nothing Matters Except Product-Market Fit
In crypto, it’s easy to get distracted by short term market movements – but ultimately product market fit + token utility is what drives a crypto project’s success. And until you have a product that users love, all the community engagement and product launches in the world can’t solve this problem.
So how are we working towards this?
We’ll dive into that shortly, but since we’re on the topic of product development, let’s get some housekeeping out of the way first:
Sunsetting The Trading Signals Product
As of today, we’re no longer accepting sign ups for the trading signals product. If you’re one of the hundreds of users who are still actively using signals, we will happily continue to maintain the service for you, as long as we can. However, there’s no further development on the signals product as we’ve pivoted our focus to B2B trading offerings for institutional and enterprise clients.
If you would like to end your subscription and unstake your coins, you can unstake your tokens here, but of course you can continue to stay subscribed to the service as well.
While our approach to building the trading signals product was to move quickly and break things, our new focus on trading products for institutional clients requires a more careful, robust approach. As a result, we have decided to go by this fundamental rule – we don’t offer any product that we haven’t battle tested with our own capital.
CoinFi’s Path Forward
We are excited that even as a small team of 8, over the past half a year we’ve built out substantial institutional-grade trading infrastructure.
We battle test it ourselves everyday and it is already delivering real value to clients – albeit a small number of clients. We continue to iterate on what we’ve built, both by testing with our own capital, and by working with clients.
Here’s a real-life example of how the trading systems we are developing are being used by clients.
Institutional-Grade Trading Technology For Enterprise
Buyers and sellers of coins outside the top 20 often have to wait days for their orders to be filled. This is a problem for projects as they want to make the buying process of their token as frictionless as possible.
The challenge arises from the fact that there are not very many natural buyers or sellers of small-cap tokens at any given point in time, creating spreads that are too wide, which further reduces demand for the token. While the former is not a problem that technology can solve, the latter is.
By using trading algorithms that analyze orderbook discrepancies across all available liquidity pools, real trading volume can be augmented, placing real bids and offers in the market that natural buyers and sellers can trade against, thus tightening spreads.
This technology is beneficial to the project and to their token holders, as having a tighter spread (i.e. providing better prices) ends up improving liquidity, creating cost savings for the end buyer and seller of the project token, and augmenting real trading volume – all of which snowball each other into a virtuous self-sustaining cycle..
It all starts with an aggregated orderbook.
What Is An Aggregated Orderbook?
An aggregated order book ingests all the bids and offers of the token listed across all exchanges in all pairs and puts it in one unified order book under one quote currency. This is done so you have the best bid and offer price at all times.
An aggregated order book is baseline trading infrastructure for any kind of institutional grade trading – after all, you can’t run any sort of sophisticated strategy if you can’t even determine which exchange has the best price and liquidity at a given moment.
For the purposes of this explanation, we will consider a hypothetical token “ABC” trading on Binance, OKEx and Huobi.
This is what the Binance order book for ABC/BTC looks like:
You can see the spread of the Binance order book is (0.003780/0.003700) – 1 = 2.2% This means than on average, a buyer or seller of this project token is paying a cost of 2.2%
This is what the OKEx order book for ABC/BTC looks like:
This is what the Huobi order book for ABC/BTC looks like:
When all the orders books are combined into an aggregated order book, it looks like this (the colors are kept the same to show the original exchanges).
Above is the simplest example of an aggregated orderbook – a real aggregated orderbook would also include /ETH and /USDT and other quote pairs, converting all prices into a single 1 quote currency, and allow the system to execute against in the book quote currency, even if liquidity is in another trading pair.
The trading algorithm reads this aggregated order book and determines where to automatically place orders in the market, quoting with even tighter pricing, and making it easier for natural buyers and sellers to trade.
Important note: This is NOT the same as the practice of creating artificial trading volume by trading back and forth with the same entity. Instead, our technology places real orders that buyers and sellers can trade against, and it is able to do this because of the naturally occurring price dispersions between markets.
In the above example, the user can safely place a buy order (bid) of 0.003745 for 1522 coins on Binance because as soon as that bid is hit, the algorithm can simultaneously turn around and sell on OKEx at the same price and size i.e at breakeven.
This is what the revised order book for ABC on Binance would look like with CoinFi’s algorithmic technology automatically placing an order (indicated in blue).
As you can see the spread has been reduced from 2.2% to 0.93% saving users an average cost of 1.27%. While this may seem relatively small, when repeated over multiple trades, those savings can compound over time.
This algorithm explained above is an overly simplified example of CoinFi technology used to provide liquidity for projects, and one that can be shared without revealing proprietary technology. It is hugely beneficial for buyers and sellers, as it narrows the spread of a token, providing better pricing for users and more real liquidity for the project.
Liquidity Begets Liquidity
There is a saying in trading that liquidity begets more liquidity. The more a token transacts in legitimate volume from organic buyers and sellers, the more it indicates interest in the token which drives further user interest and adoption.
As the crypto market becomes more sophisticated and institutionalised, we are concurrently doing quantitative and data driven analysis of market data to tilt our buy and sell prices.
This is one very simplified example of how CoinFi’s trading technology is currently being used by enterprise clients. We have also paired up as a white label technology provider to other service providers in the space who have access to institutional clients and projects.
Leveraging Our Institutional Grade Trading Infrastructure For A Better Retail Trading Experience
While our focus has been on our B2B trading offerings, we realized that some of what we built over the last six months can provide tremendous value to retail traders as well. Our thesis has always been that a lot of the infrastructure that exists in equities will also be needed in the crypto markets, and we still see this same opportunity.
We’ve conducted dozens of user interviews in the past couple months; in-depth, 1 on 1 conversations with crypto traders from the CoinFi community, gaining a better understanding of your trading habits and exploring how we can use the trading technology we’re building for our B2B clients to improve the retail trading experience.
In these user interviews, we showed some of you a peek at what we’ve been building on the B2B side and how it could be used to improve the retail trading experience, and the reaction was very positive. While we’re still early in development on this product idea, based on your feedback we will continue iterating and testing with more users.
What About The COFI Token?
Since we announced our pivot in March, one of the most common questions we get from community members (especially with the crypto market heating up), is “how will the token model work after the pivot?”
It’s been 2 years since we announced the original token model in our whitepaper and a lot has changed. Crypto moves quickly and it’s clear that the token model going forward will need to evolve with it.
Our view is that for any utility token like COFI, the formula for success comes first and foremost from providing lots of token utility, and token utility comes from – you guessed it – product-market fit. We approach every product idea with the view that it needs to offer utility to token holders, but this is premised on building a product that users need.
We’re continuing to build and iterate our way towards product market fit. We will announce a revised token model only when we are confident that we have a product that can be successfully scaled. However, we also understand that token holders want to know where their utility will come from, and what we’re planning.
While our primary focus is on creating value through utility, we’re also exploring more creative ways to deliver extra value to COFI holders:
A Token-Backed Fund?
When it comes to our B2B trading products, the only way to ensure robustness is to put our money where our mouth is – we don’t release any product that we haven’t battle tested ourselves. In order to battle test our systems, as well as execute our internal treasury management strategy, we’ve built market-neutral trading systems on top of the infrastructure we’re building out for clients.
This system is currently executing market neutral trades on a small portion of our working capital, and in recent months has proven that it can be profitable – albeit at a limited scale.
While proprietary trading is not the focus of the CoinFi project, the background of our team is well suited for building profitable trading systems, and the fund model is another potential path forward for the CoinFi project – especially as venues and opportunities for offering security tokens come online. While we’re purely in an exploratory phase, we have engaged legal counsel to better understand if there is a path towards generating returns for token holders through a fund model, via an additional security token issued to current COFI token holders.
As a disclaimer, this is extremely preliminary and only exploratory. It’s not meant to be an announcement and we highly advise against making any trading decisions regarding the COFI token based on this information. There are some very significant legal and regulatory hurdles involved in paying out dividends (or anything resembling a dividend) through a utility token (which COFI is), but we are actively exploring new ways to pass as much value as possible to current COFI token holders.
More Updates Coming Soon, And Moving On From Telegram
Going forward, we will be converting the official CoinFi telegram channel to a read-only announcements channel and using WordPress comments as our primary 2 way communication channel to answer questions and get feedback from the community.
The aim is to allow users to voice their concerns and questions, without the challenges of using real-time Telegram as an official support channel.
It’s not a decision we made lightly. We recognize that Telegram is a core part of the crypto community. We’ve always had the philosophy that we should allow dissent and criticism in Telegram.
But Telegram was never designed to be the primary platform for business communication and support. It has a lot of flaws that create a subpar user experience. The nature of real-time chat is that frequency and recency is favored over quality. Telegram has lots of noise and low signal. An inane comment has just as much weight and requires just as much time to address as quality feedback or thoughtful constructive criticisms. Misleading FUD or the idiosyncratic preferences of a single troll gets broadcasted unfiltered. Questions (constructive and otherwise) get repeated over and over again while answers are lost in the ether – no pun intended!
As we further develop our B2B offerings, we also are required to present a more professional front to clients and partners, and we’ve received repeated feedback from potential institutional partners (who are often not as embedded in the crypto community) that the FUD and trolling in telegram is a cause for concern.
We fully understand that the community needs an outlet for constructive discussion in addition to the fact that YOUR feedback is valuable and critical to CoinFi’s product development. While going forward, the main Telegram channel will be for announcements only, as the direction of the CoinFi project has become more clear over the past few months, we will publish updates on the blog on a more regular basis going forward.
While the Telegram channel will be for announcements only going forward, we encourage your feedback and question via:
- Email requests to [email protected]
- Leaving questions and comments in the blog post comments section of our update posts.
The private CoinFi Ambassadors channel will also remain open for discussion, and the team will jump in occasionally to answer questions and respond to feedback, as well as continue to distribute weekly COFI rewards.
If you do have questions or feedback about this update, please leave a comment below, and all of us on the core team will be reading, reviewing and responding over the next few days.
If you’re still reading this, you’ve been with us on a long journey, but we’re optimistic that this is only the start! Thanks as always for your continued support, and we’ll talk again soon!
The CoinFi Team