Matching Cryptos: What is a Crypto Matching Engine
Do you ever find yourself wondering how cryptocurrency exchanges connect buyers and sellers? Or how are order books managed? Keep reading if you want to learn about how crypto exchanges work, their challenges with high transaction volume, and the benefits traders can experience.
The matching engine is the most important part of any exchange, whether traditional or crypto. Its purpose is to connect orders from buyers and sellers. Traditional exchanges, such as the New York Stock Exchange (NYSE), have a central order book where all orders are kept. However, on a cryptocurrency exchange, there is no central order book. Instead, each trade happens between two people directly.
The “maker-taker” model is one of several algorithms used. Under this system, people who offer to buy or sell a security at the current market price (“makers”) are charged a lower fee than those who take away this liquidity by placing an order (“takers”). This attracts users to place their orders early on, thus providing market liquidity. Also, some exchanges give rewards to people who contribute liquidity.
There are other matching algorithms used by exchanges besides the maker-taker model. Some exchanges charge fees based on the volume of trades. Others place orders based on a first-come-first-served model, which is based on completing orders in the order they are placed.
Why Crypto Matching Engines Are Beneficial
Crypto matching engines have many benefits.
The most significant advantage is that it provides a higher level of market liquidity. With fast, automatic matching, traders can easily buy and sell digital assets at the best possible price. This also helps reduce slippage, which is when a trader buys or sells an asset for far less than its market value due to limited liquidity.
Furthermore, crypto-matching engines offer more security. By decentralizing the process, there is no vulnerable singular point that hackers can exploit. This makes it much harder for trades to be manipulated or for money to be taken fraudulently.
Issues to be Addressed
Although there are benefits to using a cryptocurrency matching engine, some difficulties exist. For example, can the engine handle a high volume of orders during periods of intense market activity? If not, this could lead to missed trades or delays in trade execution.
Furthermore, it can be complicated to establish the worth of a cryptocurrency. With standard exchanges, the value is usually set by the exchange. However, with a crypto matching engine, price setting is done by market participants, so it is harder to determine the best price for an asset.
Last but not least is the quandary of regulation. In the majority of places, cryptocurrency markets are unregulated. Without a regulating authority to monitor matching engines, there’s no assurance that they will operate in an ethical and upfront manner.
Crypto Matching for Your Brokerage
If you are a broker looking for a crypto-matching engine for your platform, there are several options available. You can select from a variety of open-source solutions, such as the Bitcoin SV or Ethereum Classic matching engines.
You can also use a third-party matching engine from a cryptocurrency exchange software development company. Such companies usually offer advanced matching engines that can keep up with high transaction volumes and provide features like low-latency order execution, risk management tools, and market surveillance.
You could also choose to develop and deploy your own in-house engine. Exchange software development requires significant technical expertise and involves a substantial cost in development and maintenance. However, with the right project management and coding skills, you can create a bespoke solution tailored to your own requirements.
Also, an exchange development cost may be much higher when building from scratch as opposed to using open-source solutions. These costs include establishing and maintaining a secure, reliable exchange infrastructure as well as developing the matching engine itself.
Crypto matching engines are becoming increasingly popular due to their enhanced security, higher liquidity, and decentralization benefits. However, they face some challenges, such as handling high transaction volumes and a lack of regulation. With the right crypto marching engine, brokerages can benefit from secure, streamlined, and efficient software for marching orders cryptocurrencies.