A protocol for quant funds and researchers to work together without revealing their IP.
It is common for investors, advisors and employees of crypto projects to liquidate token holdings in seven figure amounts. The typical practice is to liquidate ‘by hand’ - make small orders on a CEX or DEX over the course of days or weeks until the desired amount is sold. This approach,
Alternatively, firms sometimes are able to liquidate over the counter. This may obfuscate the origin of the selling pressure but OTC desks are often more callous about the effects of their sell orders.
Service providers exist that will handle liquidations. However it is rare for them to take sub-eight figure orders. The margins are slim, and the requisite expertise & code base takes years to develop.
This order size misalignment has left the liquidation-by-hand norm in place as one of the industry’s final vestiges of fully subprofessional behavior. Worse, it misaligns the incentives of projects and their backers at precisely the wrong time: As nascent projects are attempting to establish their brand and their tokens are new to the market.
Judge Research’s decentralized systematic fund is a tech stack and ecosystem for quant funds to work together without sharing their IP. The ‘execution layer’ of the ecosystem is composed of our own OEMS and the execution tech of some of the funds participating in our alpha test. Our OEMS has already handled $10b+ of real-world transactions. You can read more about us here.
This aggregation of quant funds with sophisticated execution tech presents a unique opportunity.
One ecosystem participant is a prop shop with exceptionally well-developed liquidation algorithms. Their CTO is very well known in the open source financial software community. We have witnessed them execute seven figure orders of deep alts over several weeks, and their purpose-built algorithms did a very good job. Industry-leading service providers agree with our assessment.
Their fees, 1-2%, are much less than what is saved in slippage costs & exchange fees. They will handle six and seven figure orders if it helps build a long-run relationship.
Even the best execution tech is suboptimal from the client’s perspective, due to the client’s imperfect information. A fully professional liquidation framework is as follows: Multiple firms receive a ‘test’ tranche - say 5% - of a $3m order. Software ranks which firms executed at the best price, relative to the VWAP of each of the following days. The rest of the $3m is then allocated according to that ranking. Multiple rounds of such competition in a single order are common.
This type of execution framework is used in traditional finance but only for much larger amounts. By bringing together an ecosystem of service providers and sources of demand for smaller orders, a marketplace for liquidation services in the six and seven figure range can be created.
The hard part has already been accomplished over the course of our ecosystem build. The remaining tasks are relatively simple: