Digital asset exchange infrastructure geared for high-volume trading
This is part of our December 2020 report into:
Managing trading volume and geography
The importance of having the right infrastructure to drive an exchange – any exchange, not just ones for digital assets – cannot be overstated. It provides the engine that lies behind every software platform.
Investors need to know they can execute trades without outages or other interruption. As well, they want transparency with open standards and code disclosure – closed-source, proprietary engines will no longer meet the demands of traders and can deter investment if something goes wrong.
It’s clear that the efficacy and security of the engine is critical to ensure investor confidence in the exchange. Alongside, there’s a need for speed and volume, pre-requisites for active institutional investors. If digital assets are to meet the needs of these investors, exchanges need the capacity to process very large volumes of orders in real-time to keep up with the demands of the market.
Use of top-tier infrastructure, tried and tested in a recognized high-volume marketplace, is an effective way to gain investor trust and meet market demand.
LSEG Technology’s engine technology has been rolled out both on conventional stock exchanges and digital asset exchanges around the world. Besides London, these exchanges include ones in Italy, South Africa, Norway, Hong Kong and in Switzerland, where the SIX Digital Exchange (SDX) is the blockchain-based venue for digital asset trading.
SDX is noteworthy because it is at the forefront in Europe from a technological and regulatory perspective. Its goal is to provide the same institutional-level experience traders expect from the traditional stock market, but for digital assets. SDX is currently in the process of applying for a license from the regulators, while its parent, the Swiss Stock Exchange (SIX), has already experimented with offering tokenized equity through its traditional market.
The LSEG engine ticks the speed box. It can close a trade within 90 microseconds, with the average order being process in under 800 microseconds. This compares with 650-950 microseconds for the New York Stock Exchange’s ARCA engine.
The value of robust exchange infrastructure and accountability is clear given the outages that plague the industry. Binance and BitMEX both experienced significant outages during the past year, according to Cointelegraph and Coindesk respectively. Outages mean that trades are not executed and the longer the outage the greater the potential slippage. BitMEX’s insurer paid out US$400,000 in refunds following the outage. Binance’s outage cost the company US$40 million.
The goal for any exchange is to never fail, but realistically that is currently impossible to guarantee. However, it is possible to mitigate risks through best practices, such as use of cloud computing.
Under the AAX hood
AAX uses exchange infrastructure provided by LSEG Technology. It is the first cryptocurrency exchange in the world to use the same matching engine as the LSE and several other leading financial markets. AAX deployed its LSEG matching engine to the cloud to mitigate the risks of outage that come with having a centralized data center. Using cloud technology also saves on the capital cost of building a storage facility. Cloud providers have deep experience and very wide geographic spread for their data centers, enabling them to provide an ultra-low latency trading experience for anyone anywhere in the world.