The bullish case for WOO (1/2)

If you have read my piece on making it, you might wonder what I'm currently invested in and how I pick my so-called x10's. And as you've guessed from the title of this article, it is mainly WOO. First let me clearly state this is not financial advice and a complete work of fiction. Do not buy magic internet tokens, they will all go to zero and NFT's are boiling the oceans.

Now we've got that out of the way, let's have look at a WOO Network (previously WOOTrade). In their own words WOO is a deep liquidity network connecting traders, exchanges, institutions, and DeFi platforms with democratized access to the best-in-class liquidity and trading execution at lower or zero cost. WOO Token is used in the network’s CeFi and DeFi products for staking and fee discounts.

Just another exchange

So WOO X is just another exchange? Sure, and VISA is faster than Bitcoin, so Bitcoin will never get adopted.

No, no, not let's get serious for a second. The WOO X exchange is just a small window into the liquidity network that WOO really is. You can see WOO as the collection of constantly moving volumes across several exchanges and platforms. An exchange on its own, isn't that special: it's just a website where you can buy and sell your assets/tokens. But without any decent liquidity it's gonna be a painful experience.

Now, even though I think the success of WOO X is not essential to my long thesis, I do like the platform a lot. I like it better than any other exchange I've been on. It is very userfriendly and powerful to use. That said, starting or running an exchange in 2021 is very easy. Heck, you could go on and let somebody make you a very decent exchange for 5K. Try it. What you will notice is that the hard part is not the technical part (even though you should take great care of safety). Well then, what is the hard part of running an exchange? Is it regulations? Hard, but doable as well. Marketing? Hard, but a good exchange will get popular on its own eventually. No, the hardest part of running a succesfull exchange, in my view, is providing good prices, good liquidity. Nobody wants to trade on exchanges where one big trade will clear the book. Similarly nobody likes an exchange where prices are way out of line with the rest of the market.

And this is exactly the problem WOO tackles. Not only for its own exchange, but also for other exchanges. It provides large volumes on both sides of the book within very tight spreads. Making it more attractive and less costly for people to trade.

Things that make me go: damn

Now why am I so bullish on WOO? First and foremost I am bullish on crypto. I am bullish on DeFi. These prerequisites are necessary, because if you are not, WOO is probably not a good bet for you. I would advise you to take a look at bonds in that case, or physical gold if you feel brave. My long WOO position is several bets in one:

Even though I believe all of these points are valid, even if some of them will not come to fruition, the bet looks good in my eyes. It's a leveraged but diversified bet on the crypto industry growing. Leveraged because looking at the current valuation of WOO, it has a higher potential ROI than the average project, given it's not even in the top 100 projects in marketcap. Diversified, because it's not simply a bet on DeFi or CeFi. It's both. It's not simply a bet on one exchange, it's on the liquidity of multiple platforms. It's not simply a bet on KYC-less platforms, it's also bet on a fully compliant exchange playing by the rules and aiming to stay clear of any regulatory trouble.

But there is so much more

Let's take another look at WOO X. Check the orderbooks, or consult the different websites that rank exchanges and you will note immediately: the liquidity is extremely high. Liquidity means the ease with which one can enter or exit a position without impacting the price too much. A good liquidity means there is enough volume, within a small spread. I will not post data, because I expect it soon to be outdated and it's a good practice to verify these things for yourself, but WOO X is extremely tight and liquid on the different crypto assets. At times it's the most liquid exchange for buying and selling Bitcoin.

See more here.

Not only is deep liquidity nice for you and me, it is also good for the industry. For several reasons. One is that liquidity attracts bigger investors, including institutional parties. Good liquidity also means that it is harder to manipulate prices. This means in consequence that if WOO Network's prices for Bitcoin for example would be used to price leveraged products and other derivatives, that the buyer/seller of these products has a smaller chance of getting liquidated on so-called 'scamwicks'. This subsequently will bring trust back to the markets that sometimes have been charactarized by moves that reek of manipulation, sometimes leading to inccreased regulatory scrutiny. The beauty of good liquidity is also that it will lead to a viscious circles where more traders will be attracted to the network and hence improving the liquidity even more.

This exact mechanism is what makes me believe WOO Network will absorb the majority of the crypto trading volumes.

WOO is like glue

Another point that really stands out to me is their approach to other industry players. WOO has always taken the constructive approach of aiming for mutual benefit. Look at what happened with DyDx after WOO Network started their collaboration through the Kronos market-making team. Same goes for Fantom. Crypto is in the process of taking over traditional finance and WOO is the glue that makes this happen. KuCoin, Nash and FTX all saw their liquidity improve when WOO Network started providing liquidity. As an exchange WOO X has several parts where it definitely excels compared to giants like Binance and FTX. But WOO has never mentioned this, instead opting for collaborating instead of competing. A smart long-term approach that will benefit everybody.

A part of the daily operation for the team behind WOO is called 'market-making'. In the end, market-making is nothing more than bringing buyers and sellers together. At almost every level there are interested buyers and sellers, but the world of crypto is very very fragmented. WOO Network brings these buyers and sellers together by quoting extremely tight prices on several platforms. This is possible because of several reasons. Firstly: WOO Network is connected to a wide variety of venues, making it very easy to offset risks. The easier it is for a party to offset/hedge risks, the more competitive (user-friendly) it can make its prices. This hedging can be done in the same product but on other exchanges, it can be on related products or even in derivatives or other correlated products. On top of that the team has discretionary signals and their own positions that can make (at least one side of) the pricing even more competitive. (An article on the technicalities of market-making is pending).

The right approach

I sincerely think the team behind WOO took exactly the right approach to their project. When it comes to compliance, they edge on the side of too careful rather than running into regulatory issues. They could have allowed traders of way more countries to attract userflow, but chose to get compliance clarity first. When it comes to the users, they focus on providing a smooth experience over trying to make them trade (and lose) as much as possible. When it comes to fees, they chose to take longterm growth over short-term revenue. When it comes to the industry they choose to collaborate over competing. Through their WOO Ventures intitiative they also help upcoming projects in the ecosystem to flourish. And it's clear to see that this is not just about financial gains: the team not only invests, but also actively supports the projects by providing liquidity if needed and shares the investment with WOO stakers.

Start on WOO X

---- written by Oolong WOOlong

* Illustration is Dan Scott's Nadir Kraken (Magic The Gathering)