A crypto exchange Coinbase is planning a revamp of its trading technology and creating a new suite of services to attract more institutional investors, including hedge funds and high-frequency trading firms, it claimed on Tuesday, May 15.
The exchange said it is building a new matching engine that will allow companies to match buy and sell orders for cryptocurrencies in fractions of seconds and is building up a team that will cater exclusively to institutional clients.
New services, such as the ability for trading companies to colocate their servers as close to Coinbase’s operations as possible for faster trading, will be rolled out within the year to help attract more trading participants. Critics of colocation, a feature of many electronic markets, believe it is unfair because it allows companies that can afford it to pay for faster access.
But Coinbase claimed the move will lead to better results for all traders on its platform, including retail investors, who currently trade the bulk of cryptocurrency volumes.
A lot of the new features, including lending and margin financing to qualified investors, as well as settlement and clearing services, are similar to those that exist in more mainstream markets. Richard Johnson, a senior analyst at Greenwich Associates said:
«What’s happening with a lot of crypto exchanges is that they’re doing to some extent a copy-paste from what we’ve learned from other asset classes, specifically stock markets».
Cryptocurrency companies gained attention in their early days through promises to revolutionize financial services by rendering established intermediaries and firms obsolete.
Now, when hedge funds and proprietary trading shops increasingly trade cryptocurrencies, and some big banks also are setting up trading desks for the nascent asset class, a lot of cryptocurrency companies are investing in traditional financial markets infrastructure. Maya Zehavi, a blockchain entrepreneur said that «crypto is busy re-intermediating financial services».
Coinbase said it will also introduce a new custodian offering with strict financial controls and secure storage for institutional traders.