Dealer disaggregation represents the structural separation of traditional market-making functions, such as execution, risk warehousing, and liquidity provision, into distinct, specialized entities or technological components. This shift departs from the integrated dealer model where a single firm performed all these roles. The outcome is a more modular and potentially efficient market structure.
Mechanism
The operational mechanism involves decomposing the traditional dealer’s activities into discrete services. For example, automated trading systems might handle execution, while dedicated portfolio management algorithms manage risk warehousing. Decentralized liquidity pools or specialized market makers could provide liquidity. This modularity enables different participants to offer specific services, often through application programming interfaces or smart contract interactions in crypto.
Methodology
The methodology supporting dealer disaggregation aims to enhance market efficiency, transparency, and access by unbundling financial services. It promotes competition among specialized providers, potentially lowering costs and improving service quality. Within crypto, this aligns with decentralized finance principles, enabling permissionless access to individual market functions and reducing reliance on large, integrated intermediaries. This approach fosters innovation and system robustness.
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