Last Look Compensation

In OTC FX parties know each other and can turn off market makers that are abusing last look privilege. Wallet2wallet anonymous token exchange requires trusted party/parties that would supervise last look practice and prevent market makers from abusing last look privilege. To simplify initial workflow, we decided to use CoinQuoter off-chain infrastructure as a trusted party. This decision was driven by the fact, that CoinQuoter has all the data necessary to jurge if execution request rejection performed by market maker is justified or not. CoinQuoter is also validating each individual execution request against rules setup by market maker (ex. If market maker setup a slippage of 0.05%, all execution request above this steppage will be rejected without even passing it to the market maker), so if the latency between market maker and CoinQuoter server is smaller than 100 ms there is a fair amount of confidence that execution request should be accepted on the market maker side as well.

Currently market maker is required to put initial deposit with a special smart contract. Prices of a market maker will not be show to market takers, if platform defined threshold is not available. In case of unjustified rejection CoinQuoter will compensate market taker with funds coming from market maker. At the beginning amount will be small to not discourage market makers from quoting on the platform. Due to fact that this idea is unique, and we are missing real world data on market maker and market behavior, it is unclear how big reject compensation should be given to the taker, under what conditions and with how much dependence on previous performance of the market maker/market taker. CoinQuoter team is committed to work with community on this topic, when more data will become available. We are sure that efficient way to manage last look practice will be found, will not discourage sound market makers and prevent bad actors. Taking OTC FX as benchmark long term rejection ratio of particular market-maker should be below 5%.