Why does Lykke Coin price go up?

Why does Lykke Coin price go up?

Why does Lykke Coin price go up?

By Richard Olsen and Sergey Ivliev, Lykke founders

The price of LKK has been increasing at a rapid pace. This is good news, because a higher valuation makes it easier to raise funds and enhances our brand, which in turn makes it easier to attract motivated people. There are, however, also risks associated with a rapid increase of the LKK price. If the price goes up too rapidly, the risks of unexpected sell-offs increases. We decided to prepare a weekly report of the market dynamics, so that everyone interested in Lykke could easier evaluate the price action and make an informed decision about Lykke's progress in building a global marketplace and actual price performance.dynamics, so that everyone interested in Lykke could easier evaluate the price action and make an informed decision about Lykke's progress in building a global marketplace and actual price performance.news, because a higher valuation makes it easier to raise funds and enhances our brand, which in turn makes it easier to attract motivated people. There are, however, also risks associated with a rapid increase of the LKK price. If the price goes up too rapidly, the risks of unexpected sell-offs increases. We decided to prepare a weekly report of the market dynamics, so that everyone interested in Lykke could easier evaluate the price action and make an informed decision about Lykke's progress in building a global marketplace and actual price performance.

What drives Lykke market cap?

If you follow cryptomarkets on Coinmarketcap.com, you have probably noticed that the market capitalization of Lykke coins (symbol: LKK) has increased 13x times just in 2 weeks: from $1.5m to over $20m.

Source: coinmarketcap.com

There are two factors adding to this dynamics:

  1. Dynamical circulating supply calculation
  2. Increased demand for Lykke coin

First of all, on April 12 we have agreed with Coinmarketcap.com on the rule of calculating the circulating supply based on the Lykke coins that are available in the trading multisig wallets. Previously the supply was fixed to 30m LKK that were distributed during the ICO in October 2016. However this hasn’t truly reflected the supply available on the market as a free float. Now all the coins in the trading wallets on Lykke Exchange are counted dynamically as a circulating supply.

Let’s doublecheck the coin supply by going to the LKK page on Lykke Blockchain Explorer or Coinprism (asset ID: AXkedGbAH1XGDpAypVzA5eyjegX4FaCnvM).

Trading wallets can be easily identified - their addresses start with ‘an’. Currently as of block 463280 there are 1365 wallets with 133’442’410 LKK. Other wallets starting with ‘ak’ are private wallets of the investors. At the moment: 154 wallets with 1’152’227’531 LKK.ak’ are private wallets of the investors. At the moment: 154 wallets with 1’152’227’531 LKK.463280 there are 1365 wallets with 133’442’410 LKK. Other wallets starting with ‘ak’ are private wallets of the investors. At the moment: 154 wallets with 1’152’227’531 LKK.Currently as of block 463280 there are 1365 wallets with 133’442’410 LKK. Other wallets starting with ‘ak’ are private wallets of the investors. At the moment: 154 wallets with 1’152’227’531 LKK.

Lykke Blockchain Explorer allows not only to view the ownership structure, but also to download in CSV format valid for any specific point in time. Let’s say we can select the state of the blockchain as of block 461415 mined at 10:34 UTC April 11.

We immediately see that in two weeks, from April 11 to April 24, Lykke coin has added 190 new coinholders (difference between 1519 and 1329).

Let’s now compare the inventory change between the two states of the register (some basic spreadsheet skills might be required for that). In particular we see that there are 350 coinholders that has increased their LKK holdings between April 11 and 24: with the smallest at 0.01 LKK, largest above 24m LKK, and median ~10k LKK.

On the other side there are 72 coinholders with negative change of the inventory.

Given such a demand-supply imbalance, the positive pressure was created on the price of the LKK. Essentially the price has tripled from $0.05 to around $0.15 per 1 LKK.

This explains the marketcap 13x increase, which can be factored to 4.3x increase of the circulating supply and 3x LKK price increase.

How do Lykke liquidity provision algorithms work?

We would like to use this blog post as an opportunity to explain also how our liquidity provision algorithms work.

As you may know, the market design of the Lykke Exchange currently assumes that there is only one market maker (provided by Lykke) that places limit orders (quotes), and clients can only put market orders, hence crossing the spread. The PnL of the market maker is essentially main source of revenue for Lykke, given 0% comissions for cash in / cash out and no trading fees.

The algorithm that makes the market of LKK is inventory-driven. It tries to find the equilibrium price to balance the demand and supply. The algorithm quotes the depth on various levels of the order book, managed by the following parameters: tick size (currently around 20bp), volume on the level (currently 10’000 LKK), number of levels (currently 52 on the ask and 52 on the bid side), relaxation time (currently 5 minutes).

The algorithm is non-discriminative, nevertheless due to the order book shape it incentivizes smaller order sizes, rather than bigger ones. Full description is provided in the following paper.

What to expect next?

The short term plan is to enhance the settlement process and do most of the settlement offchain in the state channels, with guaranteed mechanisms to protect both the client and the exchange. The offchain will help to minimize cost of settlement (which is already above $2 per tx on bitcoin blockchain), allow limit orders and high-speed trading for clients. Users will be able to send limit orders inside the spread, thus, improving liquidity. We will provide API for this and introduce a web-based terminal.

Dutch auction will be launched as a special trading regime to improve price discovery and make it easier to trade large tickets. The mechanism works as follows: Investor A offers to invest 100'000 USD at a price 0.5 USD per LKK, investor B offers to invest 100 USD at a price of 0.45, investor C offers to invest 300 USD at a price of 0.4, investor D offers 300'000 USD at a price of 0.35, investor E offers to invest 600 USD at a price of 0.3, investor F offers to invest 599'000 USD at a price of 0.2, investor G offers to invest 2’000 USD at a price of 0.18, investor H offers to invest 500'000 USD at a price of 0.15. If Lykke would raise 1 Mio USD, then allocation would function in the following way. All offers are summed up top down….starting with the highest offer. Investors A, B, C, D, E and F are offering to invest a total of 1 Mio, so these investors would actually receive an allocation LKK. Important all the investors would end up paying the low price of 0.2 USD offered by investor F to buy the coins. They would not have to buy at the higher prices that they quoted in the bidding process.

Institutional customers will be onboarded, when the appropriate regulation and compliance is in place. We are applying to be regulated in Switzerland, EU, UK, US and Singapore. We expect to receive a broker licenses from CySEC and SEC in summer 2017.

Last, but not least, we plan to launch the first products in payments space, including credit cards, POS/ATM, eCommerce, peer-to-peer payments, etc. Payments processed will create additional flow for Lykke Exchange especially in the FX conversions and further improve the spreads.

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