Prosper Commits to Build Robust Liquidity Tools

Andrey Sergeenkov
Andrey Sergeenkov

There is a tremendous amount of liquidity in the crypto markets, and Prosper is creating new ways for people to connect. As the size and scope of crypto markets increases, both traders and investors will need new tools for hedging and speculating that ensure trust, and derisk positions to the greatest degree possible.

At its core, Prosper is a trustless way for people to participate in short term pools and also use advanced prediction tools. Instead of limiting its users to one kind of token, Prosper is creating a platform that offers shared liquidity across some of the most popular chains, and also supports fiat currency.

The company has already created liquidity tools for Bitcoin and Ethereum users, and it will deploy support for Near, Neo, and Avalanche in the coming year. This gives Prosper users the ability to take full advantage of the massive amounts of liquidity on the most popular blockchains, and the company is working on full support for all blockchains over the coming years.

According to Investopedia,

The daily volume of Bitcoin was under $100 million per day in 2014, and sometimes it fell below $10 million. By early 2018, that number had grown to over $20 billion. However, the cryptocurrency has witnessed episodes of illiquidity. After the Bitcoin price crashed, volume often fell below $5 billion per day. However, Bitcoin's daily volume routinely exceeded $20 billion again by early 2020.”

The amount of liquidity in the Bitcoin market has gone up by 200 times over the past six years, and given the fact that more mainstream investors are entering the Bitcoin market, the level of liquidity may continue to grow.

So far, most of this liquidity has flowed through centralized platforms. There are a few reasons why this isn't an ideal situation, as recent troubles at OKEx have demonstrated. If a trader or company were using the exchange as a hedging solution, and there was a freeze on withdrawals, the trading operation could face cascading margin calls across all its accounts.

Prosper Makes Market Connections

The online wagering and hedging market has been plagued by opaque, centralized service providers. Users have to deal with one sided deals that offer them zero transparency, and no help in the event that the platform decides to act dishonorably.

Prosper changes this dynamic, and creates opportunities for anyone who wants to make informed wagers on a transparent platform. In addition to using Solidity smart contracts, Prosper is introducing an advanced betting insurance system to provide its users with maximum peace of mind.

When looking for hedging opportunities in today's marketplace, it is difficult to find any product that compares to what Prosper has created. When dealing with an exchange, the counterparty risk is very real, and user funds are generally locked up in the exchange's wallet.

Assuming loads of counterparty risk isn't necessary with Prosper.

Instead, users know their funds are stored in a smart contract that can't be accessed by anyone, including the platform itself. Prosper also built-in instant payouts, which means that funds needed for hedging purposes will be in a users wallet with zero wait time.

Established Model

The binary options model that Prosper uses is already popular, and could help the platform to attract users. Binary options payout based on a yes/no equation that is simple to understand, and also lets advanced investors hedge risk by locking in positions at given price levels.

From the standpoint of a speculator, binary options are useful for wagering on known events in the market. Prosper breaks its contract durations down into 1, 4, and 24 hour periods, so that people can actively speculate or hedge across a range of cryptos and fiat currencies.

In fact, the company is introducing tools that would allow users to create their own pools, and earn from them. While it is impossible to know if all these innovations will find a home in the markets, the transparency that Prosper creates is valued by both professional hedging operations, and speculators.

Creating Stable Markets

Liquidity is vital for the stability of any market.

Earlier this year Glenmede stated that,

Liquidity — the ability to buy and sell securities rapidly without causing a significant change in price — is essential for markets and financial institutions to function efficiently.”

In the crypto markets the centralized liquidity provider model is creating risks that decentralized, smart-contract based platforms can address. While the central bank-backed liquidity model has been in place for a century, the current market environment may challenge its ability to create price stability.

Because the smart contracts that Prosper designed are both transparent, and pay out over the course of hours, it is well placed to become a liquidity provider that removes counterparty risks, and allows its users to ensure that liquidity flows.

A smart-contact driven liquidity system could be the next generation in ensuring liquidity, as it creates trustless payouts that can't be compromised by market actors, or outside influences.

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