Automated cryptocurrency trading is becoming increasingly popular, with more and more platforms and services emerging in the space. In this article, we provide an overview of the current landscape of automated cryptocurrency trading, covering different types of platforms and services and highlighting example businesses for each. By examining these different types of platforms and services, we aim to provide a comprehensive picture of the current state of automated cryptocurrency trading and offer insights into the opportunities and challenges in this rapidly evolving market.
Outside the scope of this report are many DeFi services where active trading is not in the core focus. This includes yield farming protocols (such as Yearn Finance, HarvestDAO, StakeDAO), as they usually not focus on trading but optimising zero risk passive yield on the deposited funds. We also exclude purely smart contract based strategy protocols, like option strategies (Ribbon, Lyra) and yield tokenisation (Pendle). Also outside the scope of this review are sophisticated funds (hedge funds, proprietary traders) as accessibility to these is limited compared to services available online.
Social Trading and Copy-trading Platforms
Copy-trading platforms are consumer-facing platforms that serve as marketplaces where users purchase rights to copy the trades of someone else. There are typically two types of revenue models, one being a monthly fee to access these trades, or a profit-sharing mechanism. Usually these platforms don’t report any AUM figures, as assets are not held under their management - they purely signal trades that others follow. A major selling point of this type of platform is that it requires little to no knowledge of financial markets or active involvement from its users. A great example of this is eToro in the CeFi world.
Social trading is similar to discretionarily managed funds - there is often no automation, and any trading is based on the professionality of the copied person.
Based on publicly available information gathered, the biggest crypto social trading platforms are those provided by popular exchanges themselves. Taking a look at a platform like Bybit - even though they don’t report full AUMs, you can extrapolate an AUM based on their trader discovery page. The top 8 traders by AUM amount up to $72M if the reported figures are to be believed.
Example: eToro, Bybit, dHedge, Zignaly
Trading Bot Marketplaces
Bot marketplaces can be thought of as a subset of copy-trading platforms - they are focused on the users copying trades from a type of automated trading strategy. Sometimes users are also free to edit some of the variables used in the bot, slightly customising their approach.
A lot of centralised exchanges also offer some of the functionality similar to the platforms described above. Some exchanges (Kucoin, Binance, OKX) offer very simple bot frameworks, mostly only based on “Grid Bots” (Read more about those further down the report - see page 9). Additionally, exchanges such as Bybit offer pure copy-trading strategies. This will affect user sentiment, making users might feel more secure when using these services, as utilising a separate platform carries the risk of your API keys being compromised. However, users might be limited to only the volume and tokens of a single exchange.
Example: 3Commas, Cryptohopper
DeFi Asset Management Protocols
DeFi asset management protocols are collections of on-chain smart contracts that allow for asset management to happen on-chain. This involves creating a way for other users to deposit funds into an on-chain vehicle, receiving fund shares back in return. Typically, on-chain funds also include role management, where only certain wallet addresses are permitted to execute transactions for the fund.
It should be noted that DeFi-based products offer multiple advantages over CEX-based products, such as non-custodial management of user funds and access to a wider set of tokens. As these products mature, they may also evolve into offering integrations with other DeFi protocols, allowing even more complex strategies to be executed than just "pure” trading.
Example: Enzyme Protocol, dHedge
Robo-advisors
A robo-advisor is a type of automated financial advisor that aims to provide holistic wealth management services to individuals, focused on automated methods. They are aimed at consumers with the attempt to make it simple to invest money in a diversified way. Onboarding usually involves a questionnaire related to retirement goals and risk preferences, and investments are usually diversified across different asset types. In the crypto context, we will refer to robo-advisors as consumer-facing apps that try to simplify the job of investing in crypto.
Example: Path (formerly known as Stacked Finance), Mudrex
Strategy Development Frameworks
Strategy development frameworks focus purely on providing a platform to develop automated trading strategies using a programming language. The core of their offering usually includes: enabling access to multiple different types of market data, developing trading strategies from a range of coding languages, backtesting these bots, and operating these bots live on centralised exchanges via an API connection.
Strategy development frameworks offer the most sophistication - users are expected to be able to develop and execute their own strategies themselves.
Example: Hummingbot, Jesse.Trade, CCXT, MetaTrader
This article has been taken from our report titled “The Evolving Landscape of Automated Cryptocurrency Trading: A Market Study of Trading Strategy Solutions”. If you are interested in getting your hands on the full report join our Discord server and make a request in the general chat here: https://discord.com/invite/en8tW6MDtw or drop us an email at [email protected]