Algorithmic Trading Firms Contributing to Crypto Exchange Outages, Claims DYDX Strategist
Summary:
Technical issues on several key centralized cryptocurrency exchanges have reportedly been caused by algorithmic trading firms ramping up order placements, according to Ivo Crnkovic-Rubsamen, Chief Strategy Officer at DYDX exchange. This comes as multiple major exchanges experienced glitches after Bitcoin crossed the $60,000 threshold. While centralized exchanges are often reliable, they can face particularly daunting challenges during peak trading times, unlike their decentralized counterparts. A call for short selling of Coinbase (COIN) stock was raised by Citron, following these malfunctions, even as COIN stocks climbed over 11.36%.
The recent malfunctioning of several globally-acknowledged centralized cryptocurrency exchanges has been primarily attributed to algorithmic trading establishments, as per DYDX exchange's technical lead for trading and chief strategist, Ivo Crnkovic-Rubsamen, in an exclusive discussion with Cointelegraph. He stated that given the growing interest from non-professional traders and the brisk pace of price variations, these algorithmic trading companies are substantially amplifying their order placement and cancellation rates to safeguard their holdings. It's not unusual for such firms to increase their order tallies and rescinds twenty-fold during peak trading times.
Just last week, an array of notable crypto exchanges including Binance, Kraken, Coinbase, and Bybit were hit by technical glitches, merely days post Bitcoin's crossover of the $60,000 mark for the first time since Feb, 28, 2020. Every time there's a bull market or a surge in consumer interest leading to substantial price shifts, such circumstances arise, added Crnkovic-Rubsamen.
On the heels of the momentary malfunctioning, investment research corporation Citron endorsed a short sell of Coinbase (COIN) stock. Ahead of the 24-hour span leading up to 12:25 pm UTC, COIN stocks saw an ascent of over 11.36%, hitting $229.15 as per data from Google Finance.
Contrary to decentralized exchanges (DEXs), certain centralized ones are capable of setting tailored trade ceilings for singular market makers, founded on assumed trust. This, in turn, piles on the pressure during bull market phases as per Crnkovic-Rubsamen. Centralized exchanges might sideline one market maker they are familiar with and accordingly ramp up their rate cap substantially - a move that is fully acceptable. However, the issue arises when, during a bull market, this market maker anticipates trading at ten times the speed and their heightened rate limit becomes problematic.
In comparison, the rate limit on DEXs is controlled by the protocol itself, given that they have no direct liaisons with market makers. Crnkovic-Rubsamen stated that while centralized exchanges can be extremely dependable during standard trading phases, their reliability during peak bull market scenarios falls short as compared to decentralized ones.
Despite centralized matching engines being superior in terms of performance, highly optimized and efficient, their reliability takes a hit when they malfunction. This poses a trade-off in terms of reliability, as per Crnkovic-Rubsamen.
Published At
3/5/2024 4:50:07 PM
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