Over the last few months, the crypto space has experienced a large number of ICOs and token offerings, with 200+ ICOs generating over $6.3 billion in the first quarter of 2018. Many of these tokens have increased three folds or more in a space of merely a few months, proving to be great investments for many. Unfortunately, the problem of liquidity persists with these tokens. While an investor with a technical background may understand the complicated (and slightly risky) method of exchanging these tokens for fiat using exchanges (most of which only convert to Ethereum/Bitcoin), liquidating tokens is often beyond the reach for many. Liquid protocol aims to provide an instant liquidity platform for blockchain issued tokens.
Current solutions currently comprise of the following
- Centralised exchanges: Exchanges such as Poloniex, Bittrex, Binance etc. dominate the crypto market, with the top 20 centralised exchanges handling 88.9% of cryptocurrency exchanges by volume of Bitcoin transacted. However, most of these exchanges list relatively few, well-known tokens, leaving the lesser known, often newer and more volatile tokens without any exchange infrastructure.
- Cryptocurrency cards: Companies like Wirex, Uquid and Spectrocoin offer prepaid Visa/Mastercard debit cards that can be credited with cryptocurrencies. While they work well on paper, there are two main drawbacks of such services.
- These services typically accept only Bitcoin and Ethereum as tradeable crypto currencies. This means that ICO tokens are not accepted, and hence need to be first converted to the aforementioned currencies before they can be used.
- They do not allow clients to leverage the day-to-day volatility of cryptocurrency tokens. These cards must be preloaded with a fixed fiat value of cryptocurrencies. This means that if $1000 worth of tokens are loaded onto the card, they are now in fiat form. Even if only a part of the $1000 is spent on a particular day, the remainder remains on the card as USD balance. So, if the token appreciates in the coming days, the client doesn’t profit from the increase.
In essence, liquidation of crypto tokens can be classified as a difficult, time consuming, and often risky process for those not acquainted with wallet safety and exchange mechanisms.
Liquid Protocol aims to provide an instant liquidity framework to cryptocurrency card services by connecting them to decentralised and centralised exchanges. This would have two major advantages over existing systems:
- Consumers can directly deposit any Ethereum or NEO based tokens in their cryptocurrency debit card wallets. Yes, any tokens that are listed on at least one of the top 100 cryptocurrency exchanges. Any conversion henceforth will be handled by Liquid Protocol, making the entire process from token to fiat as seamless as possible.
- Liquid allows for instant interconversion between tokens and fiat currencies. This is great for consumers who want to protect gains on crypto tokens and leverage volatility. Instead of preloading cards by converting cryptocurrencies to fiat, they can be converted at time of purchase. This means that every time your debit card is swiped, the required number of tokens are automatically and instantly converted to fiat.
Liquid will function on a transaction fee model, accounting to 0.1% of the transaction value, which will automatically be debited in the form of Ethereum with every transaction.
Why Liquid’s entry at this point would be ground-breaking
The graph below indicates the growth in the number of ICOs over the past few years. One observation is apparent: the growth in the numbers is exponential and 2018 represents a potential peak in number of ICOs. Considering the large number of crypto tokens that have been, and will be issued (There were 83,400 ERC-20 tokens alone in May 2018), the problem of liquidity is a very real one. As ICOs get more and more approachable for the common, small and medium scale investor, Liquid can play an essential role in the propagation of the technology.