We just created this Hive account for Hummingbot, which is an open-source software client that enables anyone to run market making and arbitrage crypto trading algorithms locally or in the cloud. In our Hive blog, we'll mainly post content around crypto algo trading, market making and how to use Hummingbot.
Now let me introduce why we developed and open sourced Hummingbot. Basically, there are both large and small markets, but there are only large market makers who provide liquidity on largest trading pairs on largest exchanges currently, such as BTC-USD on Coinbase or ETH-USDT on Binance. But once you start going to smaller token pairs and smaller exchanges, that liquidity drops off significantly.
Large market makers have balance sheets in the billions of dollars, so allocating the inventory and technical integration needed to trade small-cap token pairs on decentralized exchanges simply isn't worthwhile. For these smaller markets, individuals and smaller participants are better suited to be market makers. Therefore, we designed Hummingbot to empower individuals to take on this task and contributed to the their favorite token's ecosystem.
Essentially, Hummingbot is an experiment; no one has ever created a open-source market making bot of this scale before, primarily because most quant funds and other professional trading firms are very secretive and for every bit of IP they produce, they want to keep it in-house.
The reason that we're doing this is because the actual algorithm itself is very straightforward; it's simply buy low and sell high. The hard part is more of an engineering challenge: you need sophisticated technical infrastructure to run the algorithm accurately, automatically, and quickly.
Introducing Hummingbot miner and liquidity mining
Similar to how digital marketplaces such as Google Ads and Uber revolutionized industries such as online advertising and transportation, Hummingbot miner is a marketplace-based approach to improve matching efficiency, boost transparency, and align incentives in the market for liquidity provision in crypto.
In this marketplace for liquidity, buyers can create campaigns that reward sellers for making markets in designated tokens and exchanges. Reward payments can be mapped to objective, observed actions of liquidity sellers.
We call this Liquidity Mining because the concept is similar to proof-of-work mining. Rather than setting up a mining rig and using electricity, users utilize computational power and token inventory to run the Hummingbot market making client. By competing with other participants to earn economic incentives, their combined efforts can achieve a common goal, providing liquidity for a specific token and exchange. In return, they are compensated proportional to their work, according to an algorithmically defined model. For more details, please see the Liquidity Mining whitepaper.
Check out available markets on Hummingbot Miner!
If you have any questions regarding hummingbot and liquidity mining, feel free to leave a comment below.