Dark Pool: It's Dis-advantages In The Cryptoecosystem

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Hello fam,

It is your favourite blogger @mato445 and I am happy to make this interesting post in this community today.

We will be discussing about a very nice topic in the cryptospace and this topic is no other than dark pool in the cryptospace.

We will be learning about the disadvantages of dark pool in the cryptospace, please stay tuned

DISADVANTAGES OF DARK POOL

A dark pools is a private off exchange trading platform or venue where transactions executed have little impact on the price or value of the market.

The dark pool is mostly shrouded in mystery and and anonymous it's transactional details are hidden from the public unlike the public exchanges that operates on an open ledger.

Though this services offered by this private trading platforms and venues which includes anonymity and liquidity might not be bad in it self.

But regardless there are several disadvantages of having a trading platform like this of which I am going to be writing about today.

• DISINTEGRATION OF LIQUIDITY

Liquidity is term that simply refers to the ease and ability of converting assets to cash without drastic blow back or impact on the market value.

The Dark pools are contributing to the fragmentation of liquidity in the cryptocurrency market because they are diverting most of not all of the transactions and trading activity away from public exchanges.

Any time a big time investor probably investor or a firm or institution decides to use the dark pool for his transactions instead of the public exchanges the liquidity of the crypto space is affected and disintegrated.

The disintegration of liquidity in the crypto space leads to inefficiencies and reduced market depth it also hinders price discovery, it also increases trading costs, and diminishes and destroyed the market transparency, making it challenge for individual investors and smaller market users to access liquidity and execute trades at differential prices.

• SYSTEMIC THREATS AND RISKS

Another disadvantage and risk that the dark pool poses is a systemic risk or threat to the cryptocurrency market by concentrating and magnifying liquidity and trading activity in an opaque, dark and unregulated venues and platforms.

The large volume and quantity of trading activities and transactions that are executed in the dark pools can have a significant and adverse impact or effect on the market dynamics, price stability, and not forgetting causing systemic risk to the cryptocurrency network.

In times when the market stressed than normal or more volatile the dark pools might start to experience or undergo liquidity constraints or some disruptions, which will begin exacerbating the market turbulence and amplifying, magnifying and increasing price fluctuations.

The correlation and relationship between dark pools and with public exchanges and other parties that participate in the market can cause and propagate systemic threats and contagion effects that may be leading to market-wide disruptions and instability.

• LIMITED PROTECTION OF USERS

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Investors be it of firms, institutions or retailers involving in trading activities in dark pool are provided with little or no protection from acts of fraud or misunderstanding between parties involved in a transaction.

The opacity and hundred percent privacy and lack of transparency that the dark pools provides makes it difficult or even impossible for users or investors to assess, confirm transactions between the counterparty what a risk to not be able to proved that you have been scammed, no evidence.

The dark pool does not have any regulatory protection unlike the public exchanges which offer regulatory protections though it might appear to be uncertain and have disadvantages than advantages, it still provides market surveillance, and involves in dispute resolution mechanisms, dark pools provide fewer or no safeguards at all and legal remedies for investors.

The absence of investor protections in dark pools increases the risk of fraud and manipulation, theft and misconduct, basically exposing its investors, leaving them open to financial losses and harm.

• CHALLENGES OF REGULATORY OVERSIGHT

Dark pools operates in a regulatory gray area,and therefore presenting and posing great challenges and hindrance for regulatory oversight and enforcement in the cryptocurrency space.

Unlike traditional exchanges, which are subject to regulatory scrutiny and oversight from the government dark pools are not and often they operate with minimal or no regulatory oversight or scrutiny and have not requirement to submit reports.

The lack of transparency and regulatory oversight and scrutiny in the dark pools creates challenges and hinders regulatory authorities to do their job and monitor market activity, detect abusive and illegal practices, and ensure the compliance of investors with securities laws, guidelines and regulations.

The regulatory bodies and authorities giving space to illegal users of the dark pools and not consistent in their job to scrutinize and provide oversight continues to lead to insecurity conflicts and all kind of illegal financial activities.

• REDUCED MARKET INTEGRITY

The opacity and lack of transparency in the dealings, transactions and trading activities of the dark pools raises concerns about market integrity and fairness. Without being able to obtain proof or evidence of a trading activity or transaction to be frank is not something or a place one can trust to have a fair financial dealing.

Dark pools create opportunities and safe haven and platform for manipulators and fraudulent people to see victims to cheat and scam with little or no repercussions or consequences, their illegal activities may include market manipulation and insider trading.

The existence and usage of dark pools undermines and destroys the users and investors confidence in the integrity and reliability of the cryptocurrency market and as a result eroding and diminishing years of hard earned trust among investors and stakeholders and the cryptocurrency market.

• LACK OF TRANSPARENCY

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Dark pools operates unlike and away from public exchanges it also does not have regulatory oversight or a honest and transparent ledger and this raises concern and is a disadvantage the manner of unchecked obliviousness it has towards transparency.

Unlike the traditional public exchanges which provides investors and counterparty with timestamped open immutable ledger including transactions details and data the dark pools would rather conceal trading information from the public making it difficult and nearly impossible for investors and counterparties of a market order, transaction or trading activity to obtain proof or evidence just to be safe and maintain confidence and trust in the crypto space.

The opacity and lack of transparency of the dark pools hinders price discovery and disrupts and distorts market signals and potentially leading and causing inefficiencies and the mispricings of cryptocurrencies in the crypto space.

CONCLUSION

Dark pool in the cryptospace comes with lots of advantages, but we cannot deny the dis-advantages it comes along with.

And explained above are some of the dis-advantages of dark pool in the cryptoecosystem.