An Introduction to the Tassat-Blockfills Bitcoin Trade At Settlement (TAS)
- Tassat and Blockfills have partnered to launch the first Trade-At-Settlement market for spot Bitcoin
- The TAS market allows participants to buy or sell significant blocks of Bitcoin at defined spreads from mid-market at three settlement sessions per day
TAS is a specific type of electronic order book that allows buyers and sellers to trade at defined spreads from mid-market at three settlement sessions each day: 3pm Hong Kong, 3pm CET, and 3:30pm Chicago time. These times were chosen to coincide closely with the times that funds would likely calculate NAV in each of these regions.
TAS has been widely used in markets for traditional assets for many years, and in many cases represents 10% to 15% of total market volume. It has proven to be a very effective way of reducing the “slippage” costs associated with buying or selling large blocks of an asset, particularly when used in strategies which are less sensitive to exact entry price. Blockfills and Tassat are introducing this type of market to the crypto sector for the first time for the BTC/USD trading pair, and expect to expand the offering both in terms of crypto and base currency.
TAS orders may be submitted on the Blockfills trading platform for a given TAS settlement trading session starting immediately after the conclusion of the prior session. Orders are matched based on time priority as soon as offsetting orders enter the book. Orders are entered with a size and a specific spread in increments of five basis points from mid-market. For example, a hedge fund might enter an order to buy 200 BTC at the second TAS spread above mid-market. If a liquidity provider had earlier entered an order to sell 300 BTC at the second increment above mid-market, 200 BTC would be matched and the buyer and seller would be informed that they had traded 200 BTC 10bp above mid-market.
At the stated settlement time, Blockfills receives the official mid-market price from Tassat, calculates the price at each 5bp spread increment, and reconfirms all trades that had been matched since the last settlement time with actual prices. Continuing with the example from above, if the mid-market price received from Tassat was $8,905.27, the 200 BTC trade from this example would be reconfirmed at a price of $8,914.18 (8905.27 X 1.001).
The TAS service allows Blockfills clients to access transparent liquidity for institutional size blocks of Bitcoin with pre-defined and known execution costs.
TAS has many use cases. Among the most common are:
- Rebalancing of delta hedges on option positions (i.e., gamma rehedging). Managing option positions with significant gamma can be thought of as the art of trying to balance convexity gains/losses vs time decay losses/gains. Slippage in gamma rehedging is a very real and significant factor in lowering gamma profits on long convexity positions and increasing gamma losses on short convexity positions. Minimization and greater predictability of slippage will directly lead to better performance on both long and short gamma positions.
- Position building. Trading activities which are less sensitive to exact entry price, such as long term position building or incremental daily investment due to steady fund capital inflows, can benefit greatly from the smaller and more predictable slippage achievable through the TAS market.
- Large block trading. Efficiencies from TAS execution become even more pronounced for trades of larger size due to the highly non-linear nature of slippage in retail exchange order books.
TAS Execution Efficiency
We analyzed slippage over the last six months across three of the most prominent, well-governed retail Bitcoin exchanges: Bitstamp, Coinbase Pro (GDAX), and Kraken*. The following table shows one-directional slippage (two-directional slippage would essentially be twice these numbers), in basis points, for blocks of 100, 200, and 500 BTC.
Here we define slippage as the difference, in bp, between the price level in the order book at which one could accumulate N BTC by sweeping the book and the mid-market price in the order book.
If we were to “sweep” 200 BTC from one of these order books, we would expect our average cost of execution relative to mid-market due to slippage to be 46bp (this assumes even distribution of orders throughout the slippage band; less even distribution could result in higher or lower average execution cost).
46 bp is the equivalent of 9 TAS price increments (each TAS price increments 5bp), so as long as the 200 BTC order could be filled at an average of less than 9 price increments from mid, execution would be more efficient through TAS than through retail exchange order books (given the 50 BTC minimum trade size and the commitments from spot market makers to provide liquidity for the TAS market, we would expect orders of this size to be routinely filled within the first 2 or 3 increments).
Even if the customer was willing and able to sweep three order books simultaneously, each for one third of the total size, therefore bringing the retail slippage down to the equivalent of 3 TAS price bands, we would still expect the average execution cost in the TAS market to be lower. Further, there is only need for the back office to process a few trades on one venue as opposed to hundreds of trades on multiple venues.
The Blockfills / Tassat Trade at Settlement service will bring fully transparent institutional sized liquidity to the spot cryptocurrency markets.
For more info on the TAS market, please contact Sales@blockfills.com
For more info on the Settlement Rate, please contact Sales@tassat.com
*Retail exchange data provided by Inca Digital. https://inca.digital/
For additional information please visit www.tassat.com