The cryptocurrency market stands out as one of the most fragmented financial ecosystems, featuring over 700 exchanges worldwide. This fragmentation brings both opportunities and challenges, particularly for institutional investors who face difficulties with price discovery and execution quality. The report by Finery Markets explores these complexities, comparing the operations of centralized exchanges, decentralized exchanges, and OTC markets. While fragmentation might inspire competition and innovation among exchanges, it also leads to inefficiencies. Ultimately, the challenges of this fragmented landscape may outweigh its benefits, leading to increased transaction costs and complexity in trade execution.
The crypto market's fragmentation results in a paradox of competition, where trading occurs across over 700 global exchanges, complicating price discovery and execution quality.
Institutions face challenges in navigating fragmented crypto markets, which degrade execution efficiency and increase transaction costs compared to centralized environments.
OTC markets exemplify fragmentation's impact, relying on a quote-driven system that complicates liquidity aggregation, contrasting with more traditional order-driven exchange models.
Despite driving innovation in competition among venues, market fragmentation ultimately reduces overall market efficiency and complicates execution for institutional investors.
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