Liquidity Measure in Asset-Backed Tokens: Velocity Explored Through Velocity - A Crucial Indicator
In the dynamic world of cryptocurrencies, Asset-Backed Tokens are making waves, exhibiting much higher trading velocities than traditional securities and top cryptocurrencies. This advantage stems from the leverage of blockchain technology, enabling 24/7 global trading, near-instant settlement, and enhanced accessibility.
Unlike traditional stocks that trade only during limited market hours with settlement delays (T+1), Asset-Backed Tokens operate continuously (24/7/365) on public blockchains with near-instant settlement times of seconds or minutes. This continuous availability encourages higher trading frequency and liquidity.
Moreover, Asset-Backed Tokens benefit from global, borderless access via crypto platforms, allowing a broader base of participants to trade at any time worldwide. This broadened participation boosts trading velocity.
Integration with decentralized finance (DeFi) ecosystems further enhances trading and liquidity dynamics. The use of blockchain networks like Solana or Ethereum offers low latency and minimal fees that support active trading.
While cryptocurrencies generally trade 24/7 like Asset-Backed Tokens, their volatility and market structures differ. Bitcoin, for instance, has the highest velocity among all cryptocurrencies at about 4.1%, followed by Ethereum with a velocity of 3.6%. However, Asset-Backed Tokens, particularly those backed by U.S. Dollars, combine the underlying asset stability with blockchain efficiencies, often leading to even more dynamic trading activity in certain contexts.
The largest Asset-Backed Token, US Dollar-backed Tether, is a prime example. Its velocity is over 100%, meaning every Tether token gets traded every day. This high trading activity suggests a substantial demand for Stable Coins, offering a secure haven in the otherwise volatile and risky crypto market.
In comparison, the velocity of the S&P 500 and popular FAANGS stocks is 6.3% and 0.6% respectively, while the velocity of U.S. Dollar cash (US Dollar M1 money supply) is 6.2%. These figures suggest that the crypto markets, despite being smaller, are showing similar liquidity characteristics.
In conclusion, the combination of continuous market access, instant settlement, global availability, and integration with DeFi leads to the much higher trading velocities for Asset-Backed Tokens than traditional securities and many top cryptocurrencies. This trend is set to continue as more institutions and individuals explore the benefits of these innovative financial instruments.
[1] Hyun, Hogi. (2022). The Rise of Asset-Backed Tokens: A Hedge Funds Guest Article. The Sortino Group. [2] Anonymous. (2021). The Impact of Decentralized Finance on Crypto Markets. The Sortino Group.
Institutional investors, recognizing the benefits of Asset-Backed Tokens, may increasingly invest in this sector, as its trading velocities and liquidity outperform traditional securities and many top cryptocurrencies. The continuous market access, near-instant settlement, global availability, and integration with DeFi ecosystems, all enabled by technology, contribute to these impressive performances.
With the potential for even higher trading velocity and demand among institutional investors, Asset-Backed Tokens could become a significant player in the global finance landscape, attracting increased attention from the finance industry.
