Quote-Driven Liquidity describes a market structure where prices are primarily established and maintained by market makers or dealers who continuously publish firm bid and ask quotes. In crypto, its purpose is to provide depth and immediate execution capacity, especially in OTC markets or for less liquid assets. This contrasts with order book driven markets.
Mechanism
Market makers actively quote two-sided prices, committing to buy at their bid and sell at their ask for specified quantities. Clients submit requests for quotes (RFQs) to these dealers, who respond with executable prices. The transaction occurs directly with the market maker, rather than by matching against an order on a central exchange.
Methodology
The strategic advantage of engaging with quote-driven liquidity lies in its ability to handle large block trades with minimal market impact and price discovery risk. Institutions leverage direct relationships with dealers or use RFQ platforms to solicit competitive quotes. This methodology prioritizes certainty of execution and discretion for significant capital movements in crypto assets.
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