Banking, Payments and CryptoFi

To understand why working with a vertically integrated cryptocurrency provider will pose risk for FIs, you first need to understand what a Liquidity Provider is.?You also need to understand the crypto custodial marketplace.

A liquidity provider (referred to as LP forward) is a company that fills orders placed by consumers on exchanges, or other platforms. Think of them in the same way your Stock broker places orders on the NYSE.?With an LP, your institution won’t require an inventory of the cryptocurrency you offer to your end consumer. LPs provide liquidity on most major exchanges. So if you’re working with an exchange to fill your orders, that exchange is often times acting as a middle man, marking the price of crypto up that has already been marked up by the LP.?This leads me to my next point: LPs make money on what is called the “spread”. The spread is the difference in the price they are selling a coin for, versus the difference they offer to buy the coin for. Each LP has different spreads which is essentially different markups on different coins. So if you’re thinking, should I work with multiple LPs to make sure I get the best pricing on each coin? Congratulations, you are on the right track!

Working with multiple LPs has more benefits than just ensuring you’re getting the best price on coins though. What could be considered the biggest advantage of working with multiple LPs is ensuring your organization can offer 24/7/365 access for your customers to buy and sell crypto. Sound familiar? LPs, like most tech companies, have downtime for maintenance, and other reasons. So if you’re working with just one LP, and that LP goes offline, how do your customers place buy or sell orders? What happens during that maintenance window if there is a price dip (presenting major buying opportunities) or a price spike (presenting major selling opportunities)? Could this be why some consider crypto volatile??

Here is another thing to consider. Trade errors are also something that can happen pretty regularly. No one really talks about this outside of the NYSE or other crypto exchanges.?This is defined when a customer places an order for cryptocurrency, and it doesn’t get filled.?Bad customer experience, right??What does this remind you of?

The best protection is to set up an “auto-roll” function, to roll orders to your backup LP in case of a trade error.?This will ensure your customer’s orders get filled without issue 24/7/365. Now why do I tell you all of this?

Back to my first point about why working with a vertically integrated cryptocurrency provider for FIs will pose risk. If your cryptocurrency technology provider, is also your LP, consider these question:

• How much downtime will my cryptocurrency system have?
• Am I really getting the best pricing from my LP, since the vertically integrated provider knows I don't have a choice to swap out LPs? What happens if this LP decides to raise the spread over time, like we've seen Amazon do to its customers who knows they are locked in with them?
• Or what happens if I'm not getting adequate service levels from this LP? Will I have to overhaul all the technology just to bring in a new LP (since they are one in the same with a vertically integrated solution)?

CryptoFi's patent-pending technology solves for these issues, bringing FIs a network of pre-integrated LPs that can be managed in one place through CryptoFi's crypto-as-a-service Operations Center.?We enable your institution to optimize your LP network to ensure they get the best prices, with minimal downtime. You are used to working with organizations like us.?In traditional payments world, they are your third-party payment processors

That’s quite an earful for today, let’s pick up the discussion on the crypto custodial marketplace next time.