Liquidity Aggregators for the Future of the Digital Asset Market

I recently spoke with Ahmed Ismail, Founder, President and CEO of FLUID. Join us as we discuss the problems of inaccessible liquidity in the digital asset market and how the industry is gearing up to solve them. 

Welcome! Please tell us your crypto story and how your journey began at FLUID. 

Hi! Thank you for having me on board. My journey into crypto began in 2017 after having spent 15 years on Wall Street at institutions such as Bank of America, Credit Suisse, and Jefferies where I was the bank’s youngest-ever regional CEO. I had begun to see signs that the traditional finance industry was in real structural decline. The investment banking industry, in particular, became less interesting and red tape was increasingly becoming a major impediment with regards to the ease of doing business. Even in 2017, it was an industry that was feeling the after effects of the 2008 financial crisis. It became harder and more expensive to raise capital and for companies and funds to efficiently conduct business. 

Around the same time, we started witnessing huge growth in fintech and burgeoning mainstream interest in crypto. While institutions were still trying to understand what DLT or Distributed Ledger Technology was and the industry was coming to grips with regulation, bitcoin prices were regularly being shown across media. 

With my experience in running regulated financial institutions in the TradFi world, I co-founded my first company, HAYVN - a fully Abu Dhabi Global Market regulated institutional crypto custody and OTC trading platform that helped solve the big issue of bringing regulatory compliant infrastructure to the crypto world.

In 2021, I took my passion of combining TradFi and crypto one step further to help solve another big problem in the digital asset industry - fragmented liquidity and inefficiencies in crypto markets. Along with other friends in the banking world, I eventually founded FLUID, a CeFi and DeFi liquidity aggregator that uses methodologies in the high- frequency trading (HFT). 

I’ve been into finance for as long as I can remember. So, after completing my education at Imperial College in London, I took up investment banking. As of now, I have over 18 years of experience working for some of the most prestigious banks including Bank of America, Merrill Lynch, and Jefferies Group. 

Then, the growing cryptocurrency and the broader blockchain-based industries caught my attention and I began exploring them. I became the co-founder of HAYVN, a  regulated crypto-focused financial institution. Eventually, as I further familiarized myself with the industry, I noticed price disparity among crypto exchanges due to fragmented liquidity. This is one of the biggest challenges that traders and investors in this space deal with on a daily basis. 

So, I founded FLUID as a way to solve this problem. 

Could you please further explain the problems faced by traders in the digital asset market? 

Unlike the equities or commodities market, liquidity in DeFi is fragmented, siloed away in individual blockchain networks, and inaccessible. 

However, the most pressing problem that this gives rise to is that order prices differ from exchange to exchange within the same market. And since crypto is mostly unregulated, there is no cap on prices or any regulations to make crypto exchanges conform to the standard practices. 

As a result, it becomes easier for institutions and traders to manipulate the market by creating pump-and-dump cycles and even fake orders to change prices. This further creates high volatility in the market and causes large price slippages and it is the reason why we’ve seen a sharp rise in the number of liquidity aggregators in the market. 

Moreover, a majority of liquidity in the industry is concentrated in 10% of exchanges.  So, the liquidity for trading pairs is significantly low in most exchanges. Lastly, order executions are not immediate and the trading infrastructure is not robust. 

For the uninitiated, can you explain what a liquidity aggregator is and why it is a valuable tool for traders?

A liquidity aggregator is a platform that gathers buy and sell orders from various liquidity providers and redirects them to the trader. So, this means that a trader can view order prices at different exchanges simultaneously. 

As a result,  traders can execute orders and choose the trading path with the best prices, lower slippage, and lower latency. At its core, FLUID is a deep liquidity infrastructure delivering Best Execution across CEXs and DEXs through AI-driven solutions.

Speaking of FLUID, can you give us an overview of the the platform and how it differs from other liquidity aggregators? 

With FLUID, our aim is to create a liquidity aggregator for the future of the digital asset market. But FLUID isn’t yet another spinoff of an already running liquidity aggregator. We employ a proprietary AI model that helps us predict real-time book prices with high accuracy. Moreover, we connect to all major liquidity partners providing liquidity for desired pairs.  As a result, users of FLUID can overcome price disparity between providers, access a deeper liquidity infrastructure, and experience  Best Execution across CEXs and DEXs. 

Apart from this, our smart order routing ensures that the execution time for trades is almost immediate. We also provide appropriate risk policies and customized strategies to make the most of the market. 

Our aim is to provide a reliable, price-accurate, efficient, and highly liquid trading platform for the growing multi-billion dollar digital asset market.  

As we head towards the next phase of DeFi, how is the industry as a whole dealing with the problems of fragmented and inaccessible liquidity? Apart from liquidity aggregators, what other solutions are in development?

The problems of liquidity shortages and inaccessible liquidity have plagued DeFi since its inception. We do have DeFi protocols developing a whole host of solutions for it. The main focus, however, is on creating interoperability within the industry to ensure that liquidity does not remain siloed in individual blockchains. 

When liquidity moves from chain to chain, it becomes more accessible for all DeFi users. Moreover, liquid staking is also being developed as a solution to this problem. This allows users to unlock liquidity for staked assets that can be used across the DeFi ecosystem. 

With such new solutions working in tandem with liquidity aggregators, we can expect better and more accessible liquidity in the next phase of DeFi. 

Apart from fragmented liquidity, what other problems are DeFi platforms facing as we move to this new phase of DeFi? How will this transition play out and where will it put the DeFi industry in comparison to TradFi?

In its next phase, I believe DeFi will take on a new shape and form. The emerging products in this realm are trying to make significant improvements to DeFi’s existing architecture while solving problems with the financial system on the whole. They aim to tackle problems like the lack of fixed interest rates, over-collateralization of loans, and lack of financial products for risk-averse investors by providing innovative solutions for them. We could also witness a rise in the use of financial NFTs in DeFi’s next phase. 

When these projects roll out, people across the globe will have access to superior financial infrastructure that reduces their dependency on centralized solutions and provides new opportunities for wealth generation. I like to think of DeFi 2.0 as the transition phase where the industry is moving towards real value creation.