What came first: the traders or the liquidity?

The single greatest challenge for any high-performance exchange is to possess and maintain sufficient liquidity on the products being traded. Initially, our team had the philosophy of “build it and they will come.” Unfortunately, as with many aspects of the exchange business — it’s not that simple.

When a group of friends goes for a night out, they do not want to go to an empty night club. Similarly, traders do not want to trade on an exchange where the order-book holds very few orders and volume proves even fewer executed trades. Wide spreads, thin book depth, and stop runs are only some of the issues they will encounter on such exchanges. Instead, traders want a healthy, liquid exchange to trade on. Market makers, on the other hand, are equally uninspired to provide liquidity without reliable retail flow from traders. The problem that this presents can be seen as a chicken-and-egg affair; otherwise stated, a causality dilemma. Users do not want to engage an exchange with no liquidity, and liquidity can only happen with a reliable user-base making trades on the exchange.

At Leverj, we plan to break this vicious circle and fill the gap with a four-point plan, ensuring reliable liquidity is available on all products traded on the platform:

Fee Incentives:

At Leverj, all traders are on a level playing field. There are no special fees or incentives that any one trader may take advantage of in the system.



As a start, all limit orders on the exchange will have 0% fees. This means that anyone who wants to trade solely using limit orders (not filled on execution) will be able to trade absolutely fee free! This will go a long way to incentivizing regular users to provide passive orders in the book — thus, more liquidity in the system. As for “taker” orders, or fill-on-execution market orders, the fees will likely be at a significant discount relative to other exchanges.



We anticipate that FEE will trade at a discount to the 0.0001 ETH rate accepted by the exchange. The sell pressure from LEV stakers who want to liquidate their FEE will provide the orders for traders to buy FEE at a discount and bring the net effective fee closer to 0. Another potential fee reduction comes in the form of traders buying LEV to stake and receiving FEE to pay for the fees, trading effectively free (assuming a return on the cost of the LEV token is made). Anchor Market Maker Relationships:

We realize that a two-tier maker/taker discounted fee structure alone is not enough to bring liquidity to the orderbooks. Our preference on the exchange is to give third-party market makers adequate incentive to provide consistent liquidity to Leverj.



This is why we are dedicating a significant portion of the LEV token sale to providing direct benefits to entities that provide significant orderbook depth and generate trading volume, without harming our user-base. Market makers will be eligible to receive LEV, which of course can be staked. This would reward them to get FEE distributed when they generate volume, an extra incentive above the contractual payments we provide.



Additionally, we are developing strong market making relationships that will ensure our partners are contractually obligated to meet minimum standards. In other words, we will pay a fixed service fee to firms to provide the liquidity at a given spread and size. This includes firms who are already active in crypto exchanges and legacy partners who are interested to get into crypto. This will break the vicious cycle of low-liquidity that exchanges face. By simply paying entities to provide liquidity, traders will find action with which to partake. Marketing Initiative:

The most important driver of liquidity on the exchange is the presence of actual traders opening positions. Without users, market makers are not interested in providing liquidity because they don’t have retail flow to profit from the spread. This is why we have carved out a significant portion of the LEV token sale for a dedicated marketing budget to promote greater use among traders. With a 7-figure budget and marketing experts on the team, we will be able to build a solid user-base to provide organic trading activity. Capitalizing Backup Market Making:

Often, marketing and market making relationships can be unreliable. As we realize this, we have carved out a portion of the budget for backup liquidity provision through an independent separate entity. This activates delta-neutral bots to use Ether and accounts on other exchanges to provide a degree of liquidity that ensures traders are able to trade in and out of modest position sizes. Our years of experience in crypto markets and extensive API expertise, together with ETH raised from the token sale gives us the tools necessary to provide at minimum a basic level of liquidity to our products.

Liquidity is the life-blood of an exchange. The four point plan above will address some of the shortcomings we have experienced in the area of liquidity on Coinpit. Enabled by the funds from the LEV token sale, we will have access to opportunities that did not exist before.

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