In crypto RFQ and institutional trading, bidder fatigue refers to the decreased willingness or capacity of liquidity providers to consistently participate in requests for quotes. This condition arises from a high volume of unfulfilled requests, intense competition, or a perceived low probability of successful execution. It typically leads to reduced quote responsiveness and wider spreads over time.
Mechanism
This phenomenon originates from the cumulative operational cost and computational load associated with generating and submitting quotes for numerous RFQs, many of which may not result in executed trades. Each request consumes resources, including market data processing, risk calculation, and latency optimization efforts, without guaranteed revenue. Repeated non-execution erodes the expected value of participation, disincentivizing continued active engagement.
Methodology
Mitigating bidder fatigue involves strategic adjustments to RFQ distribution and response algorithms, emphasizing selective participation criteria. Market makers might employ sophisticated filtering mechanisms based on client history, order size, or instrument liquidity to prioritize responses. Implementations could include dynamic pricing models that account for opportunity cost or minimum profitability thresholds to maintain engagement efficacy within competitive environments.
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