If you have ever traded in cryptocurrency, you would have done it on a centralized or decentralized exchange platform. But these are not the only two options. A large amount of crypto trading takes place in so-called dark pools. This concept has existed in the traditional market for ages but has gained popularity in the world of crypto only recently.
A dark pool is a private trading exchange or venue where huge investors can freely trade financial assets with one another. Securities traded in dark pools are not available to the general public and do not have a transparent order book. Trades are only visible after they have been executed. “Dark pool liquidity” refers to the liquidity available on such exchanges. These exchanges are given this term because of their absolute lack of transparency.
Major investors and organizations utilize dark pools to invest large sums of money in financial products anonymously and discreetly. Block trades account for the majority of dark pool trading. A block trade is the purchase of a large amount of an asset at a predetermined price. These exchanges operate outside the standard exchanges like NYSE and NASDAQ.
Since their debut, dark pools have sparked debate due to their utter lack of transparency. When it comes to any market, concealing the majority of the trading volume is not the desired quality. The use of dark pools may become safer due to recent advances in cryptographic verification methods. Open-source protocols can also be used so that all participants follow the same rules, reducing the risk of using a dark pool. While usage of dark pools in bitcoin is considered controversial, their benefits ensure that they will continue to play an increasingly crucial role in the cryptocurrency market.
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