Curated Competition in a trading system involves the selective inclusion and management of liquidity providers or market makers to optimize specific market outcomes. This strategy controls the participant pool to enhance pricing quality, reduce latency, and ensure sufficient depth for particular asset classes or trade sizes, especially relevant in request-for-quote (RFQ) crypto markets. It differs from open competition by establishing criteria for participation, aiming for quality over mere quantity of participants.
Mechanism
A platform or protocol operating with curated competition vets and onboards various liquidity providers based on criteria such as their historical pricing performance, execution reliability, technological infrastructure, and capital capacity. Only approved participants receive RFQs or are allowed to post bids/offers within the system. The system continuously monitors their performance, adjusting access or weighting based on predefined metrics to maintain optimal market conditions and user experience.
Methodology
The strategic objective of curated competition is to strike a balance between competitive pricing and market integrity, especially for institutional-grade trading. By restricting participation to reliable and capable entities, the system minimizes the likelihood of predatory quoting, latency arbitrage, and poor execution quality. This method supports predictable market behavior and efficient price discovery, building trust and encouraging larger order flows from sophisticated investors who prioritize reliability and depth in their trading venues.
The RFQ protocol improves price discovery by creating a private, competitive auction, yielding a firm clearing price for block risk with minimal information leakage.
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