What Makes a Good Cryptoasset Data Provider?
Why choosing the right cryptoasset data provider is key to greater institutional cryptoasset adoption
Choosing the right cryptoasset data provider will enable a more seamless and smooth integration into the world of cryptoassets for financial institutions (FIs). With confidence still a major roadblock toward institutional cryptoasset adoption, thanks to underdeveloped regulatory frameworks and the inherently volatile and mysterious nature of the industry, filtering out the crypto market noise through a reputable cryptoasset data provider is key to helping drive this transition.
To get cryptoasset exposure as soon as possible, it is important for an FI to pick a provider that can meet its needs for all cryptoasset market data, which includes off-chain and on-chain data. Trying to stitch together data from multiple vendor integration points introduces many of the operational challenges typically faced if building the data infrastructure in-house, including costs and operational challenges.
Generally speaking, the provider should have sufficient experience in the cryptoasset space and the necessary expertise to turn raw, disjointed heterogeneous data into data sets that are indexed, searchable, and normalised to time series. It is also important for data providers to offer data flexibility, and provide comprehensive, unaltered data so an FI is able to make its own investment decisions before it is filtered if it wants to.
As is the case with other types of service providers, factors such as cost, quality, and regulatory compliance should also be carefully considered by FIs.
However, in terms of cryptoasset data, and specifically off-chain and on-chain data, here is what an FI should look for from its data provider:
Off-chain Data
Provision of Level I and Level II Price Data to Enable Real-Time Decision Making. Level I price data, also known as top of book data, refers to the best bid and ask prices on each side of a cryptoasset transaction. Level II data includes between five and ten of the best bid and ask prices so it is possible to see the buy and sell orders waiting to be placed. In both cases, visibility into spreads and slippage should be provided.
Full Access to Live and Historical Prices for Any Stated Cryptoasset. The data provider should deliver real-time and historical reference data for thousands of cryptoasset pairs to meet trading and compliance needs. For example, this includes access to VWAP and TWAP on and across exchanges. Global price discovery and market depth on all major spot and derivative exchanges should be prevalent or customised to the FI’s liking, along with data from decentralised exchanges.
Low Latency Access to Real-Time and Historical Market Microstructure Data. This is required to effectively train systems and AI models, discover and manage risk, or even select the most optimal venues to trade on.
Provision of Off-chain Data Outside of Market data - FIs need to have access to transaction data that is produced outside of a core or native blockchain. This includes data from supplementary layer 2 blockchains, such as Bitcoin’s Lightning Network.
On-chain Data
Provision of Blockchain Network Data - The data provider should provide low latency access to blockchain network data, transactions, contracts, events, and logs for every cryptoasset across a specified time series. In addition, FIs require deep insight into the state and health of blockchain networks, and activity such as hash-rate, issuance, miner activity, fees, supply and address activity. This blockchain data must be reliably sourced from nodes that operate that particular network. Blockchain data being sourced should be tailored to an FIs applications and interfaces so that it can be easily used and understood. Full transparency into each on-chain data input and its impact on the wider market should be available.
Provision of Mempool and Pending Transaction Data - A mempool (short for ‘memory pool’) is a blockchain node’s backlog of pending and unconfirmed transactions on its blockchain. Access to this data allows FIs to watch transactions in-flight before they are incorporated into a block and identify large movements to or from exchanges, DeFi protocols, counterparties, addresses of interest.
Data Records - Data records of historical on-chain transactions should be kept to help track “blacklisted” wallets that are neither KYC or AML compliant.
FIs need to ensure that their choice of cryptoasset data provider offers deep coverage of market and on-chain data if they are to successfully ride the crypto wave. It could be the difference between successful or unsuccessful adoption of this exciting yet unpredictable asset class.
For more information, why not take a look at our other cryptoasset data-focused Substack posts. Here would be a good place to start.
I wholeheartedly agree with the comments made within this article, getting this wrong will cost a lot more on your own ability to provide product and strong and reliable services the FI market . I would add however that due to the nascent evolution of the market place having a data partner that devotes a primary USP to quality assurance, monitoring, 24x7 support, including direct access to product engineers to assist navigation around the plethora formats and inconsistencies across liquidity venues is key to your success. At CCData we do that, you don't need to have a massive research & discovery team to work in digital assets you just need our data. (Steve Hewson COO @ CCData)