Today, July 28, 2017, Gemini will kick off its first Ether auction. Available daily at 4:00 p.m. ET, the service will enable improved price discovery, greater liquidity, and benchmark pricing.
Price discovery is the process by which a market determines the “spot price” of a commodity. The forces of supply and demand interact to generate a current price in the marketplace. Gemini president Cameron Winklevoss explains, “Auctions focus market participants and economic information at a single moment in the day, resulting in better price discovery.”
Gemini Ether auctions might be most useful for benchmark pricing. In traditional markets like the New York Stock Exchange, core trading sessions occur from 9:30 a.m. to 4:00 p.m. ET. By comparison, the sun never sets on the cryptocurrency markets. Gemini is open for business 24 hours a day, seven days a week. If ever a trader’s heart desires, they may place buy and sell orders.
Still, when the IRS comes knocking, traders will be grateful to have the benchmark prices generated by Gemini’s auctions every day at 4:00 p.m. ET. Each April, these could form a framework for accounting and tax purposes.
Additional auction advantages championed by Gemini include instant settlement and zero counterparty risk. Since Gemini operates on a full-reserve basis, funds are available “for immediate transfer.” Additionally, trades are instantly processed from “pre-funded accounts,” removing the possibility that a counterparty will renege on a trade.
In its announcement, Gemini explains, “The final auction price of each auction is determined by finding the price at which the greatest aggregate buy demand and aggregate sell demand from all participating orders can be filled (i.e., the price at which the largest quantity can trade).”
The bidding mechanisms of Gemini’s Ether auctions parallel those of its bitcoin auctions, which began in September 2016. For additional information, check out Gemini’s order types.