Optimizing Cryptocurrency Trading Pairs Under Coverage and Liquidity Constraints

Summary

The document treats exchange quote-pair selection as an optimization problem: exchanges need to cover all currencies while prioritizing liquid pairs and limiting operational complexity. Because most possible pair volumes are unobserved, the proposed method first estimates missing values with a regularized, truncated eigenvalue decomposition. It then selects pairs using branch-and-bound search with heuristic guidance and pruning, subject to a connectivity constraint that keeps every currency tradable.

The reported experiments suggest that allowing more denomination currencies can produce a less centralized network centered on direct links between large currencies. They also indicate room to improve exchange pair lists, particularly when small coins are chosen as quote currencies or growing coins are not added promptly. The document cautions that sparse lists sacrifice coverage, while overly large lists require frequent market adjustments. It provides no detail here on the datasets, parameter choices, or quantitative size of the gains, so the results should be read as a framework and qualitative findings rather than a universal pair-list prescription.

Key ideas

• Pair selection must balance trading volume, currency coverage, and the cost of maintaining markets.
• Most potential pair volumes are unavailable directly, so the method estimates missing values before optimization.
• The estimation stage uses a regularized, truncated eigenvalue decomposition.
• A connectivity constraint ensures every currency remains reachable through selected trading pairs.
• Branch-and-bound search with heuristics and pruning identifies candidate pair sets.
• Too few pairs reduce coverage, while too many increase the burden of market maintenance.

Tags

# Optimal Settings for Cryptocurrency Trading Pairs


# Optimal Settings for Cryptocurrency Trading Pairs









The goal of cryptocurrencies is decentralization. In principle, all currencies have equal status. Unlike traditional stock markets, there is no default currency of denomination (fiat), thus the trading pairs can be set freely. However, it is impractical to set up a trading market between every two currencies. In order to control management costs and ensure sufficient liquidity, we must give priority to covering those large-volume trading pairs and ensure that all coins are reachable. We note that this is an optimization problem. Its particularity lies in: 1) the trading volume between most (>99.5%) possible trading pairs cannot be directly observed. 2) It satisfies the connectivity constraint, that is, all currencies are guaranteed to be tradable. To solve this problem, we use a two-stage process: 1) Fill in missing values based on a regularized, truncated eigenvalue decomposition, where the regularization term is used to control what extent missing values should be limited to zero. 2) Search for the optimal trading pairs, based on a branch and bound process, with heuristic search and pruning strategies. The experimental results show that: 1) If the number of denominated coins is not limited, we will get a more decentralized trading pair settings, which advocates the establishment of trading pairs directly between large currency pairs. 2) There is a certain room for optimization in all exchanges. The setting of inappropriate trading pairs is mainly caused by subjectively setting small coins to quote, or failing to track emerging big coins in time. 3) Too few trading pairs will lead to low coverage; too many trading pairs will need to be adjusted with markets frequently. Exchanges should consider striking an appropriate balance between them.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.