Long Finance’s Distributed Futures research programme is pleased to announce the launch of a research project provisionally entitled, “Addressing the thirst for Cyptocurrency Liquidity with Technical & Operating Standards.”
Cryptocurrencies are another application of Smart Ledgers. Smart Ledgers are based on a combination of mutual distributed ledgers (aka blockchains) with embedded programming and sensing, thus permitting semi-intelligent, autonomous transactions. Smart Ledgers are touted as a technology for fair play in a globalised world. There are numerous projects building trade systems using this technology with announcements from governments, shipping firms, large IT firms, and the like.
Cryptocurrencies often exhibit high price volatility and wide spreads between their buy and sell prices into fiat currencies. In other markets, such high volatility and wide spreads might indicate low liquidity, i.e. it is difficult to turn an asset into cash. Normal price falls do not increase the number of sellers. Price falls should increase the number of buyers. A liquidity hole is where price falls do not bring out buyers; rather price falls generate even more sellers. If cryptocurrencies fail to provide easy liquidity, then they fail as mediums of exchange, one of the principal roles of money. However, there are a number of ways of assembling a cryptocurrency and a number of parameters, such as the timing of trades, the money supply algorithm, and the assembling of blocks, that might be done in better ways to improve liquidity.
This project will employ simple econometric metrics to describe the liquidity risks involved in cryptocurrency investing. The initial focus will be on the Bitcoin market, as it has the largest market capitalization, but the discussion will include comparisons with other crypto-markets. This cryptocurrency liquidity research is intended to inform policy makers and business people making decisions about moving towards these systems.
The project is sponsored by the Cardano Foundation whose mission is the promotion of developments of new technologies and applications, especially in the fields of new open and decentralised software architectures.
Professor Michael Mainelli, Principal Advisor to Long Finance, remarked, “Liquidity ‘black holes’ and ‘white bubbles’ seem to be a feature of many cryptocurrencies. This research is trying to provide insights on how system parameters and standards might help provide deeper, safer liquidity for consumers.”
Michael Parsons, Chairman of the Cardano Foundation, explains, “Liquidity is the probability that an asset can be converted into an expected amount of value within an expected amount of time. Any token claiming to be ‘money’ should be very liquid. This research should help policy makers look critically at what’s needed to provide good liquidity with these exciting systems.”
Notes to Editors
Cardano Foundation - https://cardanofoundation.org/
Cardano Foundation is a blockchain and cryptocurrency organisation based in Zug, Switzerland. The Foundation is dedicated to act as an objective, supervisory and educational body for the Cardano Protocol and its associated ecosystem and serve the Cardano community by creating an environment where advocates can aggregate and collaborate.
The Foundation aims to influence and progress the emerging commercial and legislative landscape for blockchain technology and cryptocurrencies. Its strategy is to pro-actively approach government and regulatory bodies and to form strategic partnerships with businesses, enterprises and other open-source projects. The Foundation's core mission is to "standardise, protect and promote" the Cardano Protocol technology.
Long Finance – www.longfinance.net
Established in 2007, Long Finance aims to improve society's understanding and use of finance over the long term by hosting and promoting a series of lectures, discussion events and research publications. The initiative began with a question – “when would we know our financial system is working?” – and seeks to challenge a financial system that revolves around short-term thinking and practices.
Z/Yen Group – www.zyen.com
Z/Yen is the City of London’s leading commercial think-tank, founded to promote societal advance through better finance and technology. Z/Yen ‘asks, solves, and acts’ on strategy, finance, systems, marketing and intelligence projects in a wide variety of fields. Z/Yen manages the Long Finance initiative.
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