Newcomers face many obstacles when they enter the dynamic and exciting world of cryptocurrency trading–but a shortage of exchanges to choose from is not one of them.
A study conducted in April 2018 found that over 500 exchanges were in operation–and that number has only increased since. The sheer number of exchanges seems to indicate that few exchanges have acquired a large pool of loyal, satisfied customers; because if the exchange you’re using has obvious drawbacks, you don’t have much to lose by experimenting with a different one that claims to offer something better.
At Amplify, we actually give you something better.
The Amplify Exchange will combine a distributed exchange model (which offers the speed, user-friendliness, and diverse trading pair choices of popular centralized exchanges such as CoinBase) with a decentralized model (which boosts security and lowers trading costs by distributing trade processing across a resilient node network).
And the Amplify Bridgechain–an innovative blockchain ledger that syncs decentralized and centralized trades across a network of Amplify node operators onto one ledger–helps both models work in harmony.
We believe that it’s worth taking your time to do something well–and at Amplify, that means we’ll be rolling out components of the Amplify Exchange in phases. Each phase creates the foundation for the next component, and in summation, the components create a thriving Amplify ecosystem with an engaged and invaluable user base.
What will phase one of Amplify Exchange look like? It won’t be an exchange in the traditional sense, but it will be a vital building block for Amplify’s final form; phase one of the Amplify exchange will be a crypto brokerage–the Amplify Brokerage Platform.
What is a Broker?
Brokers function as middle-men who match asset-buyers and sellers. While “middlemen” are increasingly demonized in the age of direct-to-consumer sales and services, brokers can offer more financial control and better prices than traditional crypto exchanges.
In traditional finance, brokers are governed by the SEC’s National Best Bid and Offer (NBBO) regulation. The NBBO requires brokers to trade at the best available ask and bid price, which is continuously aggregated across a multitude of exchanges. . Traders don’t have to compare multiple rates offered by different brokers to complete a simple trade, because the NBBO ensures that all brokers offer the best bid and offer prices available.
The NBBO assures securities traders that their rate is a rough reflection of the current market conditions–regardless of which broker they choose to work with. Crypto traders going through crypto exchanges, however, face significant uncertainty. Prices for the same trading pairs can vary radically between exchanges, and there is no NBBO equivalent in the cryptocurrency markets that guarantees traders are working with the best bid and ask price available.
Why Start an Exchange With a Brokerage?
With our current vision for Amplify, it will be a fully functional hybrid exchange when all is said and done–so you might be wondering why are we starting with a brokerage?
There are many immediate advantages brokerages offer crypto traders. Because of their much more extensive trading networks, brokers can provide better trading prices than relatively shallow exchanges. Furthermore, they offer consumers considerably more reliability for high-volume crypto trades. Crypto broker HiveEx compared a theoretical high-volume Bitcoin trade on one of Australia’s most popular exchanges versus on their brokerage platform. Processing the trade on the exchange required 46 individual transactions at a variety of prices, while going through the brokerage required one trade using one exchange rate and one commission fee.
Undergoing 46 separate trades isn’t just slow, it also introduces less favorable exchange rates into the equation, as the high-volume trade buys out traders at preferred prices and the remaining volume must be traded further down the order book. Processing 46 different trades introduces a significant potential for slippage when orders execute on different terms than expected. Brokerages, on the other hand, help traders move between many different exchanges, dealers, and other avenues to find a single deal that offers the most optimal trading terms available.
Under the NBBO, brokers must trade at the best available ask and bid prices, creating optimal trades for consumers; however, no similar law to the NBBO exists in crypto.
At Amplify, we think the world of crypto could still learn a thing or two from traditional finance.
While companies like Coinbase essentially act as both brokerage and exchange by matching sellers and buyers on the terms of the market contained within Coinbase exclusively, Amplify puts the NBBO principle into practice by allowing users to trade at the best price available under the umbrella of multiple crypto exchanges.
As a brokerage, Amplify offers customers deep markets and significant liquidity. Traders execute high-volume and low-volume trades alike with minimum slippage or differentiation from market-wide prices.
Amplify uses its assets under management to provide customers with liquidity on partner exchanges. As Amplify manages more and more assets, we’ll start building up significant internal liquidity in addition to providing our users with external liquidity. The more crypto-volume we hold onto, the better chances we have of finding optimal trades within our user base.
If we were to launch a distributed exchange from the jump, it would most likely have low liquidity, with all the price volatility and slippage that comes with it. However, an exchange built on top of an existing network of exchanges boasts significant liquidity right out of the gate.
Liquidity isn’t the only thing that the Amplify Exchange will inherit from the Amplify Brokerage. The Brokerage creates the technical infrastructure needed for supporting trades in our Distributed Exchange (phase two). That infrastructure–first developed for the brokerage–will be critical to the Exchange, serving as the foundation for it to be built on. In fact, by the time we launch the Exchange, the Brokerage will have provided so much of the necessary architecture that some users might not even notice the switch right away! The Exchange will ultimately provide even more utility than the brokerage, but everything we’re building in the brokerage stage is essential to creating the final phase of Amplify Exchange.
Amplify Exchange is no small undertaking–but we wholeheartedly believe that it’s better to do this right than it is to launch a copycat of the other exchanges already disappointing customers elsewhere.
That’s why the Amplify Exchange will be unrolled in phases, and why phase one–the Amplify Brokerage–isn’t technically an exchange at all. Nonetheless, phase one is a crucial building block for the advanced trading capacity to come, and the brokerage ensures Amplify users enjoy the best trading options from day one.