Integrated Digital Currency Liquidity Gateway
Traders in the cryptocurrency market trade at disadvantageous prices as they do not know the real-time optimal exchange rates, and it is practically impossible to join all the exchanges that exist. Even if companies and financial institutions want to trade cryptocurrencies, it is not easy to do so as prices are volatile and the exact price of what they will trade on average remains uncertain until all transactions are completed. Also, many companies around the world are still unable to trade cryptocurrencies with their respective fiat currency and thus unable to provide crypto-related services to their customers despite clear demand.
Changer can connect all the different sources that have different digital currency exchange rates and allow customers to trade at the best exchange rates with a single subscription. Also, Changer will establish fixed exchange rates that are most favorable in the market so that companies and financial institutions can freely transact cryptocurrencies at these dynamically fixed-rate prices without having to worry about price fluctuations. Last but not least, enabling cross-exchange transactions that connect the cryptocurrency and the FX markets for companies in countries lacking sufficient trading of their fiat currency and cryptocurrencies will help them trade without liquidity concerns.
Changer will connect all of the following liquidity providers (LPs): 1) OTC market, 2) CeFi market (exchanges), and 3) DeFi market. The moment a user requests an exchange rate, the best deal among the LPs around the world will be presented. By establishing the service that connects customers and LPs, Changer will enable customer access to all LP exchange rates worldwide through a single sign-up with Changer. Based on integrated liquidity, fixed exchange rates—comparable to foreign exchanges at banks—will be established so that companies and financial institutions worldwide can hedge cryptocurrency exposure in real time.
With growing interest in cryptocurrency, companies and financial institutions are increasingly wanting to handle and transact them. However, high price volatility becomes the issue for them as they have no prior experience of trading cryptocurrencies. Changer will combine the liquidity and prices of cryptocurrencies around the world and enable companies and financial institutions to exchange at the best fixed rates.
If the average trading price was only known after completing the transaction on a cryptocurrency exchange, on Changer, users can check the exchange rate before trading. The exchange rates disclosed to the users will be executable for a certain duration, and companies can be fully protected against price volatility by connecting to the Changer API to hedge the cryptocurrency positions they came to hold through transactions with their customers.
PayPal, one of the top online payment processing companies in the U.S. with a market capitalization of 238 billion USD, announced that beginning early 2021, its customers will be able to use cryptocurrency for payments via its network of 26 million merchants. PayPal explained that when consumers use cryptocurrencies for payments, they can be instantly exchanged with fiat currency at the rate set by PayPal, and that neither consumers nor the sellers are exposed to price volatility. Similarly, the set of fixed rates offered by Changer can become essential to companies and financial institutions around the globe that want to use cryptocurrencies for payment, exchange, and remittance.
It is extremely complicated and time-consuming for an individual company to access the needed liquidity while achieving the optimal exchange rate on its own. While possible for a large company like PayPal, it would be very difficult for traditional companies with little or no experience in cryptocurrency. Changer is preparing to provide such companies with PayPal-level cryptocurrency trading services at fixed rates through a simple, easy-to-connect API.
For example, online payment services in Europe or Australia can help consumers purchase goods or services with the smallest amount of cryptocurrency (the most favorable exchange rate) by connecting to the Changer API, and prevent both the consumer and the seller from incurring a loss due to changes in cryptocurrency prices in the middle of the transaction.
2. Minimal Slippage Only on Changer
If a person in Korea exchanges money at a bank to go on a trip to Japan, for example, the transaction will occur over two sequential trades. One transaction will be to sell KRW and buy USD, and another transaction to sell USD and buy JPY. As they are done instantaneously, one may think that KRW is converted into JPY right away; such a market where KRW is exchanged directly to JPY does not exist in the global FX market.
Banks and exchange offices have linked currencies that cannot be directly exchanged using key currencies as demonstrated above. One can hence take any currency and exchange it to any other currency. The act of linking two trading pairs that cannot be directly traded is referred to as “cross conversion” in the FX market, and the exchange rate calculated by connecting the two trading pairs is called “cross rate” or “arbitrage rate” (ex. if the current exchange rate is (A) 1,128.44 KRW per 1 USD and (B) 104.76 JPY per 1 USD, the cross rate between KRW and JPY will be 1:0.092836, the relative value of the two currencies for 1 USD.)
The global FX market is already actively offering exchanges of over 180 currencies around the world using this cross rate. Cross conversion in the cryptocurrency market is still, however, in its infancy. While cross conversion between cryptocurrencies is being provided through several swap services, comprehensive cryptocurrency and fiat currency conversion has not yet reached mainstream status.
Changer therefore plans to offer a new kind of currency exchange service by enabling cross conversion between different cryptocurrencies and cross conversion between cryptocurrency and fiat currency (strictly speaking, stablecoins indexed to fiat currency prices). This is expected to greatly add convenience to particularly the trading of altcoins, which carry high risks of slippage losses due to the lack of liquidity.
For example, BAT-ETH trading worldwide on October 25, 2020 as of 9am UTC was only 3.25 million USD in total, and not even a single exchange traded over 1 million USD. This is why if someone wants to exchange 500,000 USD worth of BAT to ETH, he or she has to bear non-trivial slippage costs.
(2) Binance (https://www.binance.com/en/buy-sell-crypto/convert, https://www.binance.com/en/swap/liquidity)
If the exchange of BAT to BTC or USDT and then BTC or USDT to ETH occurs instantaneously, liquidity will remarkably become abundant. Below is the list of the exchanges and trading pairs where and of which BAT is most traded at the same given time. On one single exchange, the trading of BAT and BTC exceeds 315 mil lion USD (the possibility of cross trading should of course never be ruled out, but it is clear that the trading between BAT and BTC, and BAT and USDT/USD occurs more frequently than between BAT and ETH on in creased number of exchanges.)
Below are the trading activities between ETH and other cryptocurrencies and fiat currencies at the same given time. Transactions between ETH and USD, USDT and BTC far exceed those between ETH and BAT. When trading ETH to BAT, going through the ETH/BTC or ETH/USDT market, and then the BTC/BAT or USDT/BAT market, will help substantially reduce slippage compared to exchanging them directly in a market that lacks liquidity and trading volume.
Changer is currently preparing to introduce cross conversion in the cryptocurrency market because of such advantages. As too many types of cryptocurrencies exist and exchanges are also fragmented, developing a currency exchange infrastructure--that enables interchangeable exchanges between different cryptocurrencies and fiat currencies by integrating liquid trading pairs and exchanges-- will minimize slippage loss for traders and serve as the source technology to provide affordable exchange rates in a stable manner.
As for the trading of cryptocurrencies and fiat currencies, there are trading pairs that are always liquid around the clock like BTC/USD and those that are not such as BTC/PHP and BTC/IND. Only nine fiat currencies are traded with volume over 10 million USD per day: USD, CNY, JPY, EUR, TRY, GBP, KRW, IDR, and PLN (24-hour trading amount on October 25, 2020, Coinmarketcap.com).
As examined from the BAT/ETH trading pair, the lack of liquidity incurs a serious level of slippage losses for traders. If someone in the Philippines needs to trade ETH, he or she will incur a lot more slippage than those trading ETH in the U.S. This is no longer a matter of the common price volatility issue in cryptocurrency itself; the magnitude of the loss lies in which fiat currency is being used to trade cryptocurrency in which country. Changer is hence making a new attempt to solve this problem, which involves integrating the cryptocurrency and FX mar kets and enabling cross-conversion. While PHP lacks liquidity in the cryptocurrency market, it is the opposite in the FX market. The Philippines is in fact the fourth-largest destination for remittances by overseas workers.1 The exchange of PHP and other various fiat currencies hence takes place routinely.
If cross conversion is enabled by connecting the liquid BTC/USD market and the USD/PHP market, BTC/PHP exchange even in large amounts can be seamlessly processed by minimizing the spread loss without a cryptocurrency exchange in the Philippines that has abundant liquidity in BTC.
While there are currently 180 different fiat currencies in the world, only nine of them can be directly exchanged for BTC that takes up 61% share in the cryptocurrency market. The remaining fiat currencies are yet directly exchangeable for any types of cryptocurrency. As mentioned previously, however, if Paypal allows its 26 million merchants to accept cryptocurrency payments from 2021, countries other than the U.S. will full-fledgedly try to accept cryptocurrencies as a payment method on online and offline stores.
As Paypal settles with most of its merchants in USD and USD-cryptocurrency trading is rich in liquidity around the clock, it may be relatively easy for them to accept such a payment method. However, many other countries still do not have a market in place where their fiat currency is exchanged with cryptocurrencies and hence difficult for them to develop the same type of service. A case in point would be a casino resort district called Entertainment City planned by the Philippine government. If they are to accept cryptocurrencies for payments to attract foreign tourists, the process would clearly be more difficult than what Paypal will have to undertake. This is because despite the abundant liquidity of BTC and USD in the world, the liquidity of BTC and PHP is extremely limited.
Changer’s cross conversion provided by integrating the cryptocurrency and FX markets will be the only solution that enables companies in countries that see limited trading of their fiat currency with cryptocurrencies to transact cryptocurrencies without having to worry about slippage. Also there are so many more countries that have yet started trading them.
Changer will be among the first to address the fiat currency liquidity problem that arises when companies around the globe start to use cryptocurrencies, and the first to have offered the solution through its service. After ten years, Changer will be the backbone to the infrastructure of various companies and financial institutions handling cryptocurrency.
3. OTC Market Price Access
Chain Partners, which will develop and launch Changer, has been offering leading cryptocurrency OTC services in Asia since January 2018. The company has been trading with the major OTC desks around the world, and can trade over 20 million USD a day on credit. Changer is participating as one of the ECPs (Eligible Contract Participants) with its status categorized as an institution, and thus can process all orders from its customers regardless of size in the OTC market. This is a great advantage compared to other Meta exchanges that simply integrate liquidity of retail exchanges.
4. Next-Day Settlement
Changer completes settlement once a day with the customer. Customers are allowed to trade an unlimited number of times during the day, but settlement occurs only once. As both Changer and its customers do not need to exchange cryptocurrency each time, customers can enjoy very quick and frequent transactions without having to worry about fees.
5. Strong KYC/AML
Some CeFi token swap services and all DeFi token swap1 services do not have stringent KYC/AML processes if at all. Thus, it is very risky for institutions and companies to use these services and impossible to know who the trading counterparties are. Changer will require thorough KYC/AML processes from all of its customers, and their only trading counterparty will be Changer as explained earlier. This protects customers from counterparty risks.
6. DeFi Market Bridging
To get exchange rates from the DeFi market and perform actual token swap transactions, one needs to install a wallet (ex. Metamask) that communicates with the blockchain, transfers the cryptocurrency to the wallet, and accesses DeFi DApps for trading. This process can be very complex and cumbersome, preventing customers from accessing the DeFi market even if the exchange rates in the DeFi market are competitive. Changer will access the DeFi market on behalf of its customers so that they can trade at the DeFi market price without having to install an extra wallet like Metamask. When customers place orders, they trade with Chang er first, and Changer will have its own connectivity to the DeFi network and ability to conduct transactions at the same time. This method will significantly enhance customer experience and increase their access to the DeFi market (integration planned after Ethereum 2.0).
The daily trading volume in the traditional FX market was only 500 billion USD back in 1996. With the advancement of electronic trading software programs and the growth of the FX derivatives market, the figure reached 6.6 trillion USD as of April 2019. The software that gathers liquidity of the fully decentralized and fragmented FX markets and facilitates trade is called the Electronic Communication Network (ECN) or foreign exchange aggregator.
These software programs gather real-time foreign exchange quotes and liquidity scattered across banks and companies around the world to help users trade at the best quotes. Popular programs include Refinitiv’s FXall, smartTrade’s LiquidityFX, and Integral’s OCX. In September 2020, the average daily FX transaction volume for just FXall was 426 billion USD. In the same month, OCX processed an average of 41 billion USD worth of transactions per day. Changer’s DFX Gateway aims to become the first ECN in the cryptocurrency sector by benchmarking the growth process of the traditional FX market and gathering liquidity scattered around the world.