A look into how Wootrade works with exchanges to provide deeper liquidity and full order book support at the lowest cost, yet still generate revenue at the same time.
With the official launch of WOO X just around the corner, much of the chatter has been about this, and for good reason. The trading platform features the deepest liquidity at zero fees and has a fully modular and customizable interface. However, WOO X is just one part of the entire ecosystem of products that Wootrade offers. At its core, Wootrade is a deep liquidity network that can be integrated across exchanges, wallets, DeFi protocols, institutional trading desks, and asset managers. In this article, we will focus on exchanges as we take a deeper look into how Wootrade provides liquidity to their B2B partners.
The liquidity monopoly problem: An uneven playing field for exchanges
Today, over 70% of the volume is centralized among the top 3 exchanges, with the remaining 30% sparsely distributed across tier-2 exchanges. Traders looking to execute their transactions with the lowest slippage have to resort to using only the biggest exchanges.
This leads to a vicious cycle where liquidity gets siphoned away from the tier-2 and smaller exchanges into the monopoly of the top exchanges. To compete, smaller exchanges looking to acquire and retain traders on their platform have to resort to their own internal market-making teams or rely on expensive market makers to bootstrap liquidity on their order books.
Internal market-making carries its own share of high hedging costs due to sizable commissions on other exchanges. Hedging is the process of offsetting risk by trading an asset, usually on a secondary platform, to protect against adverse price movements in the market. In the volatile cryptocurrency markets, this skill is crucial to protecting the financial stability of an exchange.
External market makers are also deterred by the opportunity cost of market-making on an illiquid exchange, considering that their assets could be deployed elsewhere for better returns. Furthermore, they face custodial risks by diversifying their assets across multiple tier-2 exchanges. The exchange must provide them with very favorable terms to account for these risks and opportunity costs, bringing even more risks and expenses back to the exchange.
The problem for smaller exchanges, broken down:
Liquidity — Trader retention is crucially dependent on facilitating deep liquidity
Market Makers — External market makers are difficult to attract, but internal market-making can be costly and comes with major risk
Hedging — Hedging market-making risks on other exchanges is expensive due to high fees
Wootrade’s layer 1 liquidity solution: Democratizing access to the best liquidity pool
Wootrade disrupts the liquidity monopoly by democratizing liquidity access. Exchanges can freely access the network via API integration, immediately upgrade their order books to a depth deeper than the top exchanges, and tighten their bid/ask spread.
On top of that, Wootrade enables clients to hedge on WOO X, without having to hedge on other exchanges with high commissions and slippage. Features such as full cross margin, competitive interest rates, and auto margin rebalancing are also provided.
The liquidity is easily visible. For example, our partner exchanges have been able to offer traders hundreds of thousands worth of USD order execution at minimal slippage. Today, if an order is placed on partner exchanges like Gate.io, Ascendex, Hoo, and MXC, the liquidity may be sourced from Wootrade’s liquidity pool.
In essence, Wootrade is providing a base-layer liquidity solution that exchanges critically need. Instead of worrying about liquidity, these exchanges can now focus their resources on security, customer acquisition, and developing even more innovative products and services.
This then begets the question: If Wootrade is offering its layer 1 liquidity solution at the lowest or zero cost, how does Wootrade generate revenue?
Optimizing Revenues on the Back End: The Quantitative and Technology Edge
Wootrade is built on the shoulders of quant trading giants Kronos Research, one of the cryptocurrency industry’s most well-known high-frequency trading (HFT) firms. Kronos Research averages $5–15B in daily trading volume across all major exchanges.
Orders sent from partner exchanges are routed via API through Wootrade’s liquidity pool to a proprietary algorithm that uses AI and machine learning. This helps market makers like Kronos Research route orders intelligently across other exchanges, fulfilling their market-making operations there. As Kronos Research trades on other platforms, they earn rebates and revenue, which they can then fairly distribute back to Wootrade, allowing Wootrade to subsidize traders with zero fees. This is in stark contrast to front running methods that other zero-fee models might use to earn revenue.
For a deeper dive into the zero-fee model, check out the Medium article below:
How does Wootrade provide traders with zero fees and still keep the lights on?
An updated explanation of Wootrade’s zero-fee model and how it can align the goals of traders, platforms, and regular…
Looking Forward: Wootrade’s Business Development Goal in CeFi
As Wootrade’s low or zero cost layer 1 liquidity solution is the first of its kind in the crypto industry, the business development team has begun spreading awareness across exchanges to educate them on the significant difference Wootrade liquidity can make. When an exchange client onboards, they must either pay fees or stake the WOO token in Wootrade’s institutional staking wallet.
The goal in CeFi is to expand Wootrade’s ecosystem by integrating with any platform with traders and volume. Exchanges, wallets, and institutional trading desks are brokers that provide Wootrade with diverse sources of trading volume, which all leads to demand for the WOO token and contributes to revenues that strengthen and help grow the business. As further icing on the cake, 50% of all revenues for Wootrade are directed towards monthly WOO token buyback and burns. In just five months, already 7.7m WOO tokens have been burned due to buybacks.
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