The Significance of Institutional Grade Infrastructure in Shaping the Future of Cryptocurrency Trading

Quick take

  • The inherently volatile nature of cryptocurrency in relation to price adjustments and order spikes can often result in exchange outages 
  • Whilst some proponents of cryptocurrency propose outages as a fundamental limitation of centralised exchanges, LMAX Group demonstrates otherwise
  • The Group’s low latency, high throughput institutional grade infrastructure successfully manages higher order rate spikes, with zero outages
  • Cultivating understanding within the institutional community that robust, reliable institutional grade exchange technology is critical to the Group’s industry vision

 Cryptocurrencies are a volatile asset, arguably more so than many other asset classes. Due to the sentiment driven nature of crypto, they are prone to large price adjustments and consequent spikes on volumes through the exchanges.

As an exchange operator, LMAX Group has built both its institutional FX and cryptocurrency execution venues on the same low latency, high throughput institutional grade infrastructure to manage this kind of intense volatility. LMAX Digital, the Group’s spot cryptocurrency exchange, frequently experiences and manages high-order rate spikes. Additionally, in the equally fast-moving FX market, it is not uncommon to see several hundred price updates per millisecond in major currency pairs, meaning its technology has to size accordingly for these peaks.

 Due to these order rate spikes, crypto exchanges, including those catering to retail investors, tend to suffer during these. One problem is that whilst their infrastructure is effective on human time scales of seconds to minutes, dealing with an order spike of 10-100 millisecond duration is often too short for the scaling systems to react.

 

Challenging perceptions

With these drawbacks and exchange outages an all-too-common occurrence, the solution may lie in learning a thing or two from traditional market infrastructure.

Cryptocurrency evangelists point to outages as being a fundamental limitation of centralised exchanges, although LMAX Group would argue strongly against this. There are plenty of central financial exchanges quietly powering the global economy with latencies a thousand times better than the ‘crypto household names’ and with throughputs far more efficient.  

LMAX Group has long been providing institutional grade infrastructure to its clients, with 100% uptime and zero outages. Critically, it also displays real time operational service status (including the uptime) for all its exchanges in the public domain.

During the most recent spike in volatility, whereby many exchanges crashed, LMAX Digital continued to operate. Its order latency did not change from a reliable base line of just less than 200µs, even while processing 6,000 orders/second, whilst the Group’s institutional FX exchange was also processing 60,000 orders/second on what was an unexceptional trading day.

 

Traditional infrastructure is the foundation to understanding the next iteration of exchanges 

As each generation invents the world anew, sometimes the same hard lessons must be relearnt. There is often an assumption touted from the cryptocurrency evangelists that there is nothing to learn from traditional finance infrastructure and blockchain technology will sweep away all that came before. 

As large institutions enter and increasingly explore the crypto market, their expectations for robustness shouldn’t change from what they expect in trading matured asset classes, such as FX.

The problem also is not ‘centralised exchanges’, it is that many nascent crypto exchanges have not learnt the hard lessons of scalability, performance and reliability, central to other asset classes.

LMAX Group therefore believes in cultivating understanding within the institutional community that robust, reliable institutional grade exchange technology exists for trading this nascent asset class. 

There are more mainframes now in the world than there were in the 1970’s. In truth, new technologies often co-exist and depend on pre-existing technologies. Crypto will supplement and enhance traditional finance, and maybe, learn from it too.

 

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© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.