Audrey from Wootrade breaks down the project's successes to date, client needs, and gives insights on the future of the platform.
In the first article of this series, we let Business Development Manager Audrey Yang discuss the growth and competitive advantage of the Wootrade Network.
Most people still don’t realize how busy Wootrade’s business development team is. Since 2019, I’ve been working hard to onboard institutional clients to connect to the network's liquidity. Gradually, more advanced services are being built around the liquidity network and now our clients enjoy the lowest or negative fees by staking WOO. How far have we come? The Zealous Rhino program now has 47 million WOO staked by clients including Gate.io, MXC, BitMax, and Oneboat Capital.
What’s struck me most by my experiences here was Wootrade’s ability to decentralize many of the elements that plague traditional finance. Mainly, the lack of transparency with Robinhood shakes the confidence of investors in market integrity. By aggregating liquidity across all these platforms, and giving users voices in governance, traders no longer have to question what is influencing the market at a broker level.
Challenges faced by the clients
What types of clients does Wootrade seek? In addition to exchanges, there are also wallets, OTC desks, asset managers, and dApps. All of them are united by the need for two things, liquidity, and users. This is a bit of a chicken and egg problem — users can’t trade unless the liquidity is there, and traders don’t provide liquidity unless other users are there. So what’s their existing solution?
Market makers trading on a platform must be able to earn a spread: setting buy bids and then selling at a slight premium. For that to be possible, there must be a balance between “maker” orders and “taker” orders. Maker orders are orders placed below the market price, which a taker can view in the order book and then choose to accept. Platforms usually try to incentivize maker orders by offering them a lower fee structure, or in some cases, rebates for their trading volume. Ultimately, however, the lack of takers on a smaller or newer exchange means that market makers aren’t exactly lining up to trade.
Internal market making
If they can’t find third party teams, they can also use an internal market-making team to manage liquidity. Why is this a less-appealing option? For starters, the risks of being a market maker are high. When placing maker orders, traders can act on newer information, a phenomenon known as adverse selection. This can create losses for the market maker, especially when volatility pushes the market too far in one direction.
Secondly, over-exposure to a specific asset is also a risk. When the markets move due to volatility, an exchange or market maker may end up with too much of one asset, leaving them vulnerable.
Thirdly, a market maker must worry about not having enough takers. If the orders are not being filled, then the capital tied up in orders is not generating any revenue for the maker.
“Even with a market maker, an exchange can’t guarantee that the quality of liquidity will be high. An exchange could be offering rebates and monthly fees, and still end up with subpar liquidity.”
A third option is to route orders to bigger exchanges. This is an easy way for exchanges to alleviate risk but doesn’t add much value to the development of the platform while adding additional fees to their bottom line.
Clients can achieve substantial savings over these previous options by integrating with Wootrade. Rather than pay a market maker negative fees to trade, or maintaining their own high-risk team, a direct integration will give a trading platform deep liquidity from the moment they integrate.
An indirect method of integration can also be made by hedging maker orders on Wootrade. A few clients prefer to control their own markets, but when positions are becoming too imbalanced, can make the opposite trades on Wootrade’s network. This also generates value, as lessening risk is an important part of operating a trading team. In some cases, they can also offer fractionally different prices between the hedge and the price on their own platform — insignificant to the average retail end-user, but over the long-term, these small fractional points can add up.
Wootrade’s competitive advantage
As we meet with founders, executives, and liquidity managers for clients, it’s quite simple to illustrate how much we can save them. Most of them know us already as we originated as one of the biggest digital asset quantitative trading firms in the world. That opens a lot of doors and the trust has already been built up from years as a top client of these same platforms.
In many cases, they save money, lower risk, and dramatically improve liquidity all at once. Our competitive advantage is more than just the network: our experience as traders, as well as the proprietary capital being traded on the network, make our model very difficult to replicate. It’s not just a matter of designing the software. You need people who understand markets and have existing relationships with platforms and traders at every level. Kronos Research and Wootrade have that. Our experience covers every vertical in the digital asset space, something almost no one else can offer.
But what about top tier exchanges?
All exchanges want to improve their liquidity. For one, competition for top traders is fierce. If one exchange was to consistently have better liquidity, they could steal a larger market share from other top exchanges. Some top exchanges have also fragmented into smaller geographic regional exchanges. These exchanges need independent liquidity to avoid the regulations of a specific region. That’s where we can really provide value, as no organization wants to manage multiple liquidity teams simultaneously.
I’m optimistic that top tier exchanges will join the Wootrade network when the timing is right. As Wootrade’s liquidity network grows in diversity, volume, and scalability, it will be able to offer even the largest exchanges a valuable service. The trick will be building more trust with clients, which we are doing through features like security audits and insurance funds.
The future of Wootrade’s product development is spreading quickly in multiple directions: DeFi, CeFi, and first-party financial services. We have a real opportunity to connect all these services, and do it in a way that gives token holders and platform adopters control of their own destiny. This is the vision I have for Wootrade, and I’m looking forward to seeing it put into action.
There will be a lot more news and notes coming in Spring — don’t forget to follow our socials to stay updated with all the news from the Wootrade Network: