The Token Bucket Algorithm is a traffic shaping and rate limiting mechanism used in computer networks and systems, including those supporting crypto platforms. It regulates the flow of data or requests, ensuring that resource consumption does not exceed a defined threshold. Its primary purpose is to control network bandwidth usage or API call rates, preventing system overload and abuse.
Mechanism
This algorithm operates conceptually with a “bucket” that holds “tokens,” where tokens are added at a fixed rate. Each request or data packet consumes one token from the bucket. If the bucket contains sufficient tokens, the request proceeds immediately; otherwise, it is queued or dropped. This allows for bursts of activity while limiting the average rate.
Methodology
In crypto trading, the token bucket algorithm is applied to manage API request rates from institutional clients or algorithmic trading systems, preventing denial-of-service attacks and ensuring fair access to market data and execution services. Exchanges and RFQ platforms implement this to protect their infrastructure from excessive load. This systematic control maintains system stability and prevents individual actors from monopolizing resources.
Smart Trading logic internalizes API limits as a finite budget, allocating requests via a prioritized gateway to ensure critical execution under any market condition.
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