The best way for most investors to purchase and sell crypto is through an exchange.
But what is a crypto dark pool, and why are they needed?
What Are Crypto Dark Pools?
Dark pools are privately organized crypto exchanges where securities trading is carried out.
Dark pools are efficient for institutional investors executing block trades.
A block trade is a large, privately negotiated transaction.
How Does a Crypto Dark Pool Work?
Imagine a situation where you place a sell order on a stock or any other security.
Then an institutional investor places a buy order on the same security using very large funds.
Such a buy order can change the market price significantly, leading to a bullish move.
Other traders who see such a large order in the order book will also react.
As a result, some who intended to gobearish may take a bullish position, changing market sentiment.
If this happens often, market sentiment will also change constantly, reducing market efficiency.
Dark pools also ensure that there are no slippages during trades.
With this, institutional traders can be sure that their trades will be executed at the intended price.
This also makes them very effective in illiquid crypto markets.
Trades are usually matched in dark pools by considering the best bid and ask prices.
They also won’t need the privacy and anonymity associated with dark pools.
Large trade orders are usually broken into smaller orders before connecting them to buyers to guarantee security and anonymity.
Crypto dark pools also have better verification techniques and other protocols that make it very difficult to manipulate prices.
As a result, they provide fair market prices for everyone.
Are Decentralized Dark Pools a Lasting Solution?
The major setbacks in the traditional dark pools are solved in crypto dark pools.
Traditional dark pools tend to promote unethical practices and are not very transparent.
