Liquidity aggregators are not new in the financial world; in fact, the solution has been applied for many years across traditional financial instruments to solve fragmented liquidity. Accordingly, it shouldn’t be a surprise that the demand (and use) for liquidity aggregators across the crypto ecosystem, especially in DeFi, is skyrocketing.
To understand the role of liquidity aggregators in the expanding crypto economy, it is critical first to understand what liquidity means. In the broader context, liquidity refers to how easily investors can convert their assets into cash. Markets that offer high liquidity can facilitate large transactions without price slippage, allowing investors to trade efficiently and effectively.
The crypto market has always had problems with liquidity. This is because the ecosystem is highly fragmented, with individual liquidity providers, pools, and platforms catering to a specific group of users on top of a standalone blockchain. The underlying blockchain networks operate in individual silos and seldom communicate with each other, adding to the quandary.
Next, there are hundreds of different crypto exchanges, DeFi dApps, platforms, and protocols - each serving different groups of users. On top of that, the wide (and continuously growing) spectrum of investment opportunities spread across these platforms makes it extremely difficult for users to capture all price movements efficiently. If a user wants access to the best prices, they have to sign up across hundreds of platforms and monitor all of them simultaneously - a feat that’s impossible to achieve manually.
This is where liquidity aggregators come to the rescue. In the last few years, a wide range of centralized exchanges (CEXs), decentralized exchanges (DEXs), and hybrid liquidity aggregators have emerged, effectively removing some of the biggest entry barriers to cryptocurrencies.
Liquidity Aggregators Lower The Participation Threshold
Liquidity aggregators combine orders from integrated exchanges and connect institutions and retail investors through the aggregation infrastructure where these orders can be routed and executed.
To facilitate this activity, liquidity aggregators pull liquidity from a wide range of sources. Some aggregators gather liquidity from CEXs, DEXs, or swap pools, and a few follow the hybrid model, where they accumulate liquidity from both CEXs and DEXs. This data is then presented to investors and traders via a unified interface. As a result, investors gain direct access to the best available prices and fees across the broader market without monitoring everything manually.
Take, for instance, the Unizen smart exchange ecosystem, where investors get access to deep hybrid liquidity aggregated from CEXs and DEXs and advanced decision-making tools from a single dashboard. As a result, Unizen users can check the best price point for any asset and trade and exchange it without leaving the platform or transferring funds between multiple exchanges.
Unizen’s CeDeFi (Centralized Decentralized Finance) architecture allows traders to search for the best available opportunities based on liquidity depth, KYC, AML stipulations, and fees. The platform also facilitates trades at lower slippage, higher availability, and better security.
Orion Protocol is another promising liquidity aggregator and AMM (Automated Market Maker) that enables investors to access liquidity from DEXs, CEXs, and swap pools from a single interface. The platform is designed to route all swap orders towards the liquidity supply with the best value.
Additionally, Orion’s liquidity aggregation platform removes the exhausting process of registrations and verifications users must undergo when signing up for CEX accounts. It also eliminates the need for multiple wallets, KYC checks for each wallet, and the need to monitor price movements across multiple exchanges constantly. Instead, users can simply register on Orion Protocol, handle verification, and start trading across hundreds of exchanges from a single account.
The Future Is Cross-Chain Liquidity Aggregation
Currently, the most successful virtual asset liquidity aggregators focus on aggregating exchange liquidity and use quant-based methods to provide investors with the best available price points across the market.
The ability of exchanges and liquidity nodes to source liquidity across blockchains efficiently, compliantly, and transparently remains a key issue despite the virtual asset and token industry's growth to a multi-trillion dollar industry. Large billion-dollar exchanges still use highly inefficient, expensive, and slow liquidity providers with high counterparty risks.
While DEX aggregators and AMMs exist, they are often limited to aggregating liquidity and routing orders on specific chains - Ethereum for the most part. Yet, despite Ethereum’s commanding position in the DeFi landscape, several other layer-2 solutions and third-generation blockchains have emerged in recent years, gradually positioning themselves as new liquidity hotspots. However, the limited interoperability of blockchains, paired with the blockchain-centric focus of existing aggregators, has created new barriers.
The need of the hour is cross-chain liquidity aggregators, which FLUID offers. Launched less than a year ago, FLUID offers a frictionless blockchain-based solution that replicates institutional-grade liquidity aggregation in the global FX market, using best-in-class MPC wallets. FLUID aggregates liquidity across spot, futures, derivatives, STO, and SCO markets to offer its users real-time price updates, AI Quant-driven strategies, and near-zero latency and trading fees.
FLUID's main objective is to provide cross-chain liquidity and high throughput, effectively eliminating transactional issues between various decentralized platforms. By doing this, FLUID is unlocking new opportunities that will ultimately result in higher operational efficiency, lower costs, a better end-user experience, and new product development frontiers for exchanges, liquidity nodes, and cross-chain liquidity pools.
As more and more assets get tokenized in the future, cross-chain liquidity will play a key role in the further expansion of the crypto economy. FLUID and other emerging cross-chain aggregators will take center stage, contributing significantly toward DeFi 2.0.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice