1. Market Background
After the strategic adjustment in the first quarter of 2023, Rambox shifted its strategic focus from NFTfi to "exploring all aspects of digital technology development in the commercialization of AI," with the permanent core goal of building the world's strongest and most simplified stable income platform. In this context and foundation, it is necessary to provide some necessary market information to all users who are currently participating in or will participate in Rambox.
1.1 What is liquidity?
In traditional markets, "liquidity" refers to the ease with which assets can be traded in economic transactions. The greater the ease with which users can sell assets at prices close to market prices, the greater the liquidity. In the context of the crypto market, liquidity often refers to the ease with which crypto assets can be converted into fiat currencies or other tokens.
When it comes to liquidity in the crypto market, the higher this indicator is, the more funds and transactions are taking place in the market. At the same time, in a market with strong liquidity, individual transactions do not significantly affect asset prices. For example, if users can buy and sell large amounts of cryptocurrencies quickly, the market can be considered liquid.
It is important to note that both liquid and illiquid assets can coexist in the market. If users are trading top-tier cryptocurrencies, they may not encounter liquidity issues. However, holders of lesser-known altcoins may face difficulties in selling them at desired prices. Low liquidity in digital assets can lead to such problems. This is also one of the reasons why Rambox initially chose NFTfi as the core product, as NFTs themselves have high financial carrying capacity but poor liquidity performance in their market.
1.2 Factors affecting the liquidity of crypto assets
There are various factors that affect the liquidity of cryptocurrencies. Generally, it is impossible to know the impact of a specific factor on market liquidity without considering other factors. Let's take a look at the main ones:
One key factor to consider when examining the relationship between the characteristics of trading instruments and market liquidity is the concept of substitutability. If instruments are highly substitutable, market liquidity tends to concentrate in one of them. Participants are more inclined to buy assets with higher liquidity, assuming other conditions are equal. Conversely, if a particular instrument does not have a counterpart in the market, trading may be challenging due to concerns about its liquidity in crisis situations and limitations in financial strategy construction.
Trading volume is a crucial factor that helps traders assess the liquidity of a market. High trading volume indicates significant interest from investors in buying and selling the assets. Analysis of trading volume should be done during trading hours.
The greater the applicability of a cryptocurrency, the higher its liquidity. For example, Bitcoin is accepted by over 40 million sellers worldwide, and this factor is correlated with the turnover of cryptocurrencies. When certain companies add crypto assets to their payment options, it increases their liquidity.
Virtual assets are treated differently in various countries, and the official stance of governments also impacts the market. The more participants there are in a state engaging with virtual assets, the greater the liquidity of cryptocurrencies. For example, in some states in the United States, people can pay taxes with cryptocurrencies.
With the increasing participation of public chains in the cryptocurrency market, there have been communication difficulties among various assets on different chains. Although there are now cross-chain bridges to facilitate asset interoperability, these cross-chain methods can only perform single-asset transfers and do not directly address user liquidity across chains. This has led to public chains employing various means to compete for the limited market liquidity.
1.3 The Future of Cryptocurrency Liquidity:
While centralized exchanges (CEX) complement the asset trading capability of cryptocurrencies, the limited user interaction on CEX platforms prevents participation in the unique cryptocurrency ecosystem of decentralized exchanges (DEX). Since DEX became an industry trend in 2020, it has rapidly gained market share, reaching parity in trading volume with CEX in just over two years by April 2023.
DEX continues to maintain high growth momentum. Currently, the only advantage of CEX lies in fiat currencies and the ability to attract market makers to provide liquidity and reduce trading slippage. However, in the current market environment, this advantage is meaningless for long-tail crypto assets.
The advantages of decentralization remain concentrated in the unique advantages of power decentralization. User control over private keys represents absolute control over assets, which cannot be achieved by CEX through any compliance or other means. Additionally, under the influence of the open financial ecosystem of decentralization, the increasing participation of people in the decentralized ecosystem is just a matter of opportunity, not a matter of market education.
We have reason to believe and firmly believe that the future will be in DEX, and Rambox's ecosystem will experience a breakthrough.
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