New-York based digital currency exchange Gemini has recently announced it is going to begin holding daily ether auctions in an attempt to facilitate trading with higher volumes at lower costs, with attractive prices. These start Friday, July 28.
The exchange, founded by the Winklevoss Brothers, has been holding daily bitcoin auctions since September 2016 as reported by CCN and, encouraged by its success, decided to offer the same kind of price discovery to ether traders.
Daily auctions are common in traditional financial markets such as the New York Stock Exchange. According to Gemini’s President and co-founder Cameron Winklevoss:
They increase price discovery and transparency, and they reduce costs across the board by making sure that buyers and sellers don’t miss each other during the trading day.
Gemini’s Ether Auctions
Like with bitcoin auctions, users will be able to enter Auction-Only Market and Auction-Only Limit orders to place bids for buying and selling ether, every day at 4 P.M. Eastern Time (ET). 10 minutes before the auction time, indicative auction prices are broadcast over the exchange’s market data API and website. The number is calculated every minute by simulating the auction process for the order books, if it were held at that time. One minute before auction time, the number is calculated every 15 seconds.
Essentially participants have little less than 10 minutes to determine if they want to go through with their bid, or give up on it. Moreover, per Gemini’s website:
All active orders (including resting limit and MOC orders) may interact with the Auction and influence the final auction price, which is determined by finding the price at which the greatest aggregate buy demand and sell demand are fulfilled.
According to Gemini, daily ether auctions will facilitate high volume trading between customers, and provide greater price discovery as they focus market participants and economic information at a single moment in the day.
Since Auctions are held at a single moment, price slippage is minimized as more buyers and sellers are able to converge, effectively increasing liquidity. Additionally, auction trades settle immediately, and funds are made available for immediate transfers. This, unlike OTC traders that could require the user to go through verification processes.
Finally, there is no counterparty risk, as auction traders settle from pre-funded accounts meaning the risk of the counterparty backing out is eliminated, again unlike OTC trades which are usually not pre-funded.
Gemini’s ether auctions come at a time in which the bitcoin community started to praise it for its customer support, unlike a few companies in the market that have barely been able to handle the new user influx.