AI-driven innovation will fuel more stable crypto markets

AI-powered solutions for crypto markets will become more stable as they mitigate slippage and uncertainty, achieving deeper liquidity access and efficient predictive analysis.

Disclosure: The views and opinions expressed here belong solely to the author and do not represent the views and opinions of’ editorial.

During the G20 Summit in February, the International Monetary Fund (IMF)  considered ‘banning private cryptocurrencies’ an option to solve the global debt restructuring crisis. It has now realized this won’t help solve associated problems. The U.S. Security and Exchange Commission (SEC), though, seems hell-bent on regulating crypto using brute force.

Recent lawsuits targeting Binance and Coinbase are outcomes of the SEC’s misguided approach toward crypto. It worsens the growing frustration among industry stakeholders. Stifling emerging technologies is neither fair nor profitable. Fostering innovation to solve existing problems is rather what’s expected, given the US’s otherwise progressive history.

Instability is one of the key points in the SEC’s arguments against crypto. It is indeed a major pain point for nascent crypto markets facing sub-optimal liquidity access and high volatility. But long-term solutions are emerging rapidly, leveraging the steady evolution of AI. Regulators must recognize the positive efforts and provide the environment to help them achieve their full potential. 

The blame game isn’t productive

There’s been a lot of mud-slinging recently between those speaking for and against crypto. From project owners to regulators and senators, mostly everyone has played the blame game somehow. But one must pause to ask if it’s at all productive. 

Not really. While regulators must fix their stance toward futuristic technology, innovators have to identify and accept crypto’s limitations, overcoming them promptly. Besides scalability and composability, there are three main concerns here: fragmented liquidity, latency, and inefficient order execution. 

The blockchain ecosystem has over $64 billion in total value locked across protocols. Likewise, despite almost a year of bearish sentiments, cryptocurrencies have a total market capitalization of over $1 trillion. And yet when something like LUNA or FTX fails, investors are stuck with massive losses.

Further, institutional investors and big traders often suffer considerable slippage while trading crypto. This and the inability to exit positions in time are both due to siloed liquidity and latency in execution. It hurts crypto’s adoption goals and gives reasons for regulators to continue their attack in the name of investor protection.

It’s ironic how protecting investors and boosting their confidence is in fact crucial for crypto’s long-term success. This highlights another level of innovator-regulator collaboration through positive efforts. What regulators will do remains to be seen, but the crypto industry is already adopting viable solutions. 

Aggregation improves liquidity access

Legacy financial systems enable high-frequency trading with processes that ensure deep liquidity access even under significant stress. Such frameworks are highly beneficial for crypto markets as well. It’s utterly wasteful to let so much available liquidity remain underutilized in silos.

Innovative liquidity aggregators, powered by smart order routing mechanisms, redeem crypto traders. To ensure the best execution, they settle trades against multiple liquidity pockets instead of a single exchange or trading platform. This further enhances price discovery and minimizes slippage for bigger trades.

Besides optimizing trade execution on a day-to-day level, liquidity aggregators also put crypto investors in a better position to tackle black swan events. Since these systems don’t source liquidity from singular entities but rather tap the entire ecosystem, they provide more secure exit points with ease.

On that note, aggregation is particularly important for Tier-2 and Tier-3 exchanges that often don’t have enough liquidity for high-volume trades. This applies to centralized exchanges (CEXs) and decentralized exchanges (DEXs) but smart liquidity aggregators can serve them both. Nevertheless, aggregating liquidity alone can’t bring stability to crypto. 

AI brings stability with predictive analysis

For event-based, low-latency, smart aggregator protocols to achieve max potential, they must be able to predict the market trajectory accurately. This was a key challenge for crypto trading systems so far, which also explains the severe impact of volatility on most investors.

The times are now changing, however, thanks to AI’s rapid development. Leveraging AI makes liquidity aggregators smarter, with cutting-edge predictive analysis. This is made possible by hybrid AI models that use deep learning, neural networks, machine learning, etc. Efficiently processing vast unstructured data sets unique to crypto markets, they identify patterns that ordinary systems could not.

AI-powered liquidity aggregators are still a novelty, but they can already predict market movements up to 20 seconds with 90% accuracy or more. Further training will improve these figures, setting off a positive feedback loop with greater adoption. That’s the beginning of a more reliable future for high-frequency crypto trading. 

Crypto markets will become more stable as they mitigate slippage and uncertainty, achieving deeper liquidity access and efficient predictive analysis. Investors will enjoy a secure ecosystem and regulators don’t need to worry about protecting them using brute force.

Crypto innovators are putting immense effort to meet their end of the bargain. It’s upon the authorities to provide their support now, helping build a progressive environment that’s best for them, the industry, and the world at large. 

Ahmed Ismail

Ahmed Ismail

Ahmed Ismail is the president, co-founder, and CEO of FluidAI, a fintech company that harnesses AI to solve fragmented liquidity in the digital assets industry. Ahmed has 18 years of experience at some of the biggest financial institutions globally, including Bank of America, Credit Suisse, and Jefferies. After his time at Jefferies as the US investment bank’s youngest-ever regional CEO, he co-founded HAYVN.

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