Algorithmic trading firms have been identified as the main cause of recent outages at some of the world’s largest centralized cryptocurrency exchanges, according to Ivo Crnkovic-Rubsamen, the chief strategy officer and technical lead for trading at dydx exchange. These firms have been increasing the rate at which they place and cancel orders on the exchanges in order to maintain their positions in the fast-moving market. Crnkovic-Rubsamen explained that during busy periods, trading firms can produce 20 times the number of orders and cancels than usual.
Prominent exchanges like Binance, Coinbase, Kraken, and Bybit have all experienced technical issues in the past week, coinciding with Bitcoin’s surge above $60,000 for the first time in over two years on February 28. Crnkovic-Rubsamen stated that such issues are common during bull markets and periods of concentrated retail interest.
Following a temporary outage, investment research firm Citron recommended a short sale on Coinbase stock. However, Coinbase’s shares actually rose by over 11.36% in the 24 hours leading up to 12:25 pm UTC, trading at $229.15, according to Google Finance data.
Crnkovic-Rubsamen explained that centralized exchanges, unlike decentralized exchanges (DEXs), can set custom trading limits for individual market makers based on trust assumptions. This customization contributes to the increased workload experienced by centralized exchanges during bull market conditions. He added that DEXs, on the other hand, have rate limits set by the protocol since they have no direct relationships with market makers. While centralized exchanges are highly reliable during normal trading, they can be less reliable than DEXs during peak bull market loads.
Crnkovic-Rubsamen concluded by stating that centralized matching engines have excellent performance and efficiency but lack reliability when they go down. This creates a trade-off between performance and reliability.