Dark Pools in Cryptocurrency - Crypto Academy | S5W8 - Homework Post for @fredquantum.
Question One
Discuss Dark Pools in Cryptocurrency in your own words. How does dark pool works?
Dark Pool Explanation
Dark Pool in Cryptocurrency is associated with trading of cryptocurrency assets on the exchanges where is provided without the notice of the other parties. Its the type of crypto trading activities which is basically done in a hidden manner.
Dark Pool style of trading has been in existence for sometime now, though it is not popular as such most traders do not take part in it.
The first trading platform for trading in Dark pool was launched in 2018 with the name "Kraken"; this has lead to increment in the trading.
How does Dark Pool work?
Dark Pool trading has a simplified method on how it works.
Dark pool trading works between two set of traders anonymously.
The participants is not allow to see who they are trading with until the deal is completed and closed.
The volume of there trades is not made known while the trade is still active and the name of the trader will still be hidden.
Who can participante?
Below are the list of participants on Dark Pool Trade.
- Financial institutions like bank
- Individuals
- Investment groups etc.
Important notes on Dark Pool trading
- It is done anonymously
- The participants are not exposed
- The volume of there buy or sell trade reminds hidden untill the security is closed.
- It is not controlled by a third party.
- The pairs that is traded depends of the exchanger offering the services.
Question Two:
Discuss any crypto exchange that offers a dark pool. How does its dark pool work?
Bitfinex
Bitfinex is a cryptocurrency trading exchange platform which was established in 2012 by a team developers with the main concept of offering a peer 2 peer services to her customers.
The exchange later added more asset to there system and the concept of trading was born.
This Cryptocurrency exchange has lasted for the about 10 years now and it's history it has faced lots of issues following the system being hacked in 2015, the US government fine in 2016, the accusation which says that it's manipulation lead to the increase of Bitcoin in 2017. However, this exchange has withstand the text of time.
How does it work
Betfinex exchange gives individuals who have signed up with them and completed just the opportunity to use her service which includes; Cryptocurrency trading, p2p, margin trading etc.
Question Three:
What are the supported assets on the dark pool mentioned in (2) above? What are the requirements for getting involved in dark pool trading on the platform? Is there any fee attracted? Explain.
SUPPORTED ASSETS
- BTC
- USD
- LTC
- ETH etc.
To participate on in the dark pool trading, one must be a register member and verified as well the fee for this trade in the platform is to pay the minimal transaction fee.
Question Four:
For the chosen dark pool, give a brief illustration of how to perform block trading on the platform. (Screenshots required).
Question Five:
What's your understanding of the Decentralized dark pool? What do you understand by Zero-Knowledge Proofs?
| DECENTRALIZED DARK POOL | ZERO- KNOWLEDGE PROOF |
|---|---|
| This is a type of trading method in which the buy and sell order are done anonymously. | This is where information provided by a user in cryptocurrency exchange are been scrutinized and approved. |
QUESTION SIX:
State one decentralized dark pool in cryptocurrency and discuss it. How does it work?
Kraken
This exchange was established in 2011, it is used for fiat exchange and Cryptocurrency. To trade with this exchange one has to first sign up and after that must verify the account before ant trade is being carried on. Below is a screenshot on how to go about trading on it.
The interface of the app is very easy to comprehend as such it does not require much stress.
Once you login to the your page, the application will present to you the interface to buy or sell coin after clicking on trade.
Question Seven:
Compare a crypto centralized exchange dark pool with a decentralized dark pool. What are the distinctive differences?
| CRYPTO CENTRALIZED EXCHANGE DARK POOL | CRYPTO DECENTRALIZED EXCHANGE DARK POOL |
|---|---|
| It gives from for biding | Its an exchange for hidden trade entry |
| The transactions sometimes are made available | It's transactions are not always in the public domain. |
| It could be used by any trader with huge capital | The institutions majorly use it. |
| There is a party to control the trade | The trade runs between two different traders |
| Recent trades base on news impact could be used for trade entry | The huge trading does not cause much effect on the price of the assets. |
Question Eight:
Research any recent huge sale in any market in the crypto ecosystem and how it has affected the market. What difference would it have made if the dark pool was utilized for such sales?
Bitcoin
The drop of Bitcoin recent time is as a result of El Salvador’s disconnection of a wallet. Before the time, business has adopted the use of Bitcoin as a point for payment on goods and others. This happened in September, 2021.
If dark pool was used for such sales, the price depreciation of Bitcoin would not have made a high impart on the depreciation of it.
Question Nine:
In your own opinion, qualitatively discuss the impacts of trades carried out in the dark pool on the market price of an asset. (At least 150 words).
The dark pool impact on the market is insignificant, despite the fact that trading on Dark pool is anonymous and it involves millions in each trade but the buy and sell clicks does not affect the price of the asset.
The signal information provides could be used by experienced traders to place a profitable trade in dark pool while those with intermidiate skills on how to use information for trading could partially place a trade on dark pool and those with little or no understanding tends to abstain from such trade.
Although trading with information is not a guarantee for profit however, it give an edge to make good profit from for those trading with information.
On like the regular cryptocurrency exchanges which offers trading book a good signal for buy and sell trade, such book is not found in dark pool. Hence making trading trade to be too difficult or nearly impossible.
Question Ten:
What are the advantages and disadvantages of Dark pool in Cryptocurrency?
Advantages of Dark pool in Cryptocurrency
Low transaction fee: The transaction charges for Dark pool is very minimal since it is used for trading of larger amount of cryptocurrency by big firms .
It's transaction is made hidden and that makes it better for for institutional traders.
It is designed for private trading
Disadvantages of Dark pool in cryptocurrency
The price of an asset could be manipulated by a firm since the trading is not transparent.
The price of the said asset or Crypto pair will not be predicted easily since the trading is anonymously.
