Over the past 48 hours, the FLUID team has been closely monitoring the current climate and the impact FLUID can play in helping to reduce huge volatility in the face of black swan events such as the UST downfall.
A black swan event is unpredictable beyond what is normally expected of a situation, obvious in hindsight, and has potentially severe consequences. Examples include the subprime crisis and subsequent meltdown of the banking sector in 2008, the market capitulation that happened as a result of COVID-19 and its inherent global shutdown. In the financial markets or any industry for that matter, black swan events are mostly known as negative. Still, history shows that these events are also a pivotal point of positive systemic change. FLUID believes that the same process will apply to this event.
As FLUID, we officially state, the biggest mistake in this event was the lack of regulation of stablecoins, and from day one, FLUID welcomes regulation to enter the industry and elevate standards to safeguard all stakeholders across the board.
The downfall of UST as an algorithmic stablecoin is a black swan event and should never have happened – a project worth over $18bn, it was too big to fail, and regulatory controls around the project’s automated trading system could have mitigated this situation a long time ago. Its death spiral brought BTC down by over $10,000 in a matter of hours and has caused widespread damage to our peers, exchanges and investors. It’s evident that the industry, and in this case automated DeFi trading systems that grow to this size financially, need to be better regulated in order to safeguard all stakeholders.
As a company, FLUID gathered in the past 48 hours to discuss the current climate and came up with some important observations as a team:
What has come to fruition are the risks associated with algorithmic stablecoins. We want to explain FLUID’s point of view as simply as possible, and the key message here is that computer code cannot replace asset-backed collateral.
An algorithmic stablecoin isn’t backed by assets; instead, it’s stabilized by computer code with an advanced algorithm to hedge the peg against its reserves. It is now proven that algorithmic stablecoins have loopholes in their architecture. Unfortunately, this crack in the architecture has managed to bring a project worth $18bn to almost zero within a few days as it tried to defend its UST/USD peg position by selling large amounts of BTC in the market. This event has managed to cause systemic risk in DeFi, even affecting BTC to touch $24K at the time of writing.
That said, it seems as though asset-backed stablecoins such as USDT, USDC and BUSD have more or less weathered the storm and investor sentiment remains intact here – a silver lining. USDT still traded nearly 5% wide of USD peg over the last few hours showing how extreme volatility managed to affect the price of stablecoins that are meant to be 100% asset-backed.
This event has highlighted key lessons to be learned by the DeFi industry, and certainly that algorithmic stablecoins do not work and need much more R&D and controls before they can be allowed to get so big.
This isn’t the first black swan event, nor will it be the last. They will happen again in the future – That’s just our industry growing and learning.
HOWEVER, the BIG question is, why was there so much systemic fallout that affected other assets in the market?
The answer boils down to liquidity, volatility and how markets react in the face of black swan events. Crypto markets are illiquid and thinly traded. Liquidity is siloed, and crypto markets are extremely inefficient. They become especially vulnerable, and even the most stable cryptos such as BTC and ETH become fragile and are in the spotlight when liquidity cannot move.
‘Crypto markets need liquidity aggregators’ more than ever before in order to help investors weather dark storms caused by black swan events.
When volatile conditions occur, market participants need access to liquidity quickly and at the best possible price in order to maintain equilibriums.
FLUID is working to create a risk mitigation controls-focused high throughput and ultra-low latency liquidity aggregator by using AI quant-based methodologies to increase market efficiency and help crypto trading venues and overall market participants reduce volatility in the face of adverse events.
Even though FLUID is not regulated, we embrace exacting industry-wide regulations in DeFi to help the industry evolve and will be ready when the time comes.
A stablecoin is a cryptocurrency whose value is linked to another asset class, such as a fiat currency or gold, to stabilize its price.
Liquidity aggregation is not a new concept in the financial industry. On the contrary, it has been used as a solution to tackle fragmented liquidity for many years across conventional financial systems.
Over the last decade, artificial intelligence has snowballed, and no business or industry today is immune to its influence and pervasiveness. This is more evident in the financial services industry, which is constantly evolving and realizing that AI is a transformational technology.
The DeFi industry has the potential to disrupt the TradFi industry by using blockchain-based applications and services to replicate banking, investing, and trading activities. Many TradFi services already have a DeFi counterpart, and more are on the way.
Blockchain-based technologies have surged in popularity over the years. Time and time again, efforts have been made to promote awareness of this relatively new phenomenon. The decentralized finance (DeFi) sector is undeniably thriving, with the total value rising from $700 million in December 2019 to over $200 billion at the beginning of 2022.
The internet that we know today has traversed a long way since its inception. Web1, the first internet, had a physical infrastructure of cables and servers that allowed people and computers to communicate with one another. The ARPANET Network of the United States government sent its first message in 1969, but the web that we know today didn't exist until 1991, HTML and URLs allowed people to browse between sites.
FLUID has compiled a list of the most important headlines from the past couple of months, including Kraken's new operating license in Abu Dhabi, Ukraine's cryptocurrency legalization, and New York's two-year crypto mining embargo.
Despite Dubai's popularity as a trading epicenter, the UAE government has sought to transform the city into a global hub for digital asset trading. According to Bloomberg, the Dubai Multi Commodities Centre (DMCC), the UAE's largest deregulation zone, had built up an administrative structure for crypto companies in March 2021 and had already recognized 22 crypto-blockchain entities.
FLUID, the ultra-low latency liquidity aggregator that uses AI quant-based models to tackle inefficient fragmented liquidity in virtual asset markets, has announced it will integrate the LERC20 standard of Lossless to power its $FLD token with hack mitigation capabilities of detecting fraud, freezing fraudulent transactions, and reversing stolen funds.
The term liquidity has various financial meanings that are often used interchangeably and can be very confusing; it could refer to the ease of how an asset is exchanged for another without affecting the market price, how much liquidity a company holds, aggregating liquidity from different sources, or providing access to liquidity.
FLUID LP – FLUID’s DeFi solution – will utilize Polygon as its commit-chain to provide ultra-low transaction fees at speed.
FLUID is a game-changer for the virtual assets industry in liquidity aggregation and provides high throughput, ultra-low latency and costs, and zero counterparty risk through AI quant-based solutions
Counterparty risk refers to the situation where one of the parties of the financial transaction fails to fulfill their commitments. In the traditional market, stocks, bonds, and derivatives carry counterparty risk.
Cryptocurrencies saw values soar in 2021 when some investors sought a haven from the inflationary pressures. Additionally, retail consumption spiked across the industry, with data revealing that global crypto use had increased by more than 880 percent last year.
FLUID is delighted to announce 🔥FLUID REWARDS 🔥 - the only way to secure your $FLD (FLUID’s Token) pre-TGE.
Trading technologies have evolved significantly over the years. The traditional finance trading technology evolved from a simple electronic order book to an ultra-fast, interconnected, AI-supported unified liquidity, allowing investors and institutions to facilitate advanced trading strategies.
Virtual assets are known for their volatility. Even though the virtual asset market is considered volatile, with the recent digital assets trading and investments boom, many institutional investors seek greater involvement.
As the DeFi industry exceeds growth forecasts, it has now significantly attracted more interest from financial institutions and regulatory bodies.
FLUID is the trading system that consists of an AI-based smart order routing protocol and cross-chain liquidity aggregator enabled by FLUID’s proprietary hedging pool providing high throughput at ultra-low costs, ultra-low latency, and zero counterparty risk.
Most present-day centralized crypto exchange platforms use custodial trading.
Liquidity is the measure of ease to which a cryptocurrency asset can be exchanged/traded into another crypto asset or fiat currency.
Regulation of exchanges and more broadly the infrastructure enabling the trading and exchange exchange of virtual assets has been a widely discussed hot topic that has over 2021 and 2022 graced many government bills.
It’s no secret that the crypto-verse moves at blazing speed with many projects finding success in disrupting the disruptors. So while DeFi protocols like yield farms and DEX’s were at a high last year, the flood of multiple similar platforms have prompted the rise of DEX aggregators like 1inch and 0x.