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In this blog post, our Co-Founder and Chief Technology Officer, Vlad Cealicu, discusses the importance of end-of-day reference pricing for digital assets, explaining the challenges associated with this area and how CCData is addressing them with our innovative Digital Asset (DA) Fixings Benchmark Family.
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Historically, the digital asset sector has functioned without a universally accepted, industry-standard end-of-day (EOD) reference price. Although various EOD reference rates are available, none have gained acceptance as the predominant standard, akin to popular reference rates used in the traditional financial sector, which are relied upon by institutions across the world.
The absence of a widely accepted reference pricing standard has hindered precise portfolio valuation and compliance and auditing processes for institutional investors. Recognising the pressing need for a reliable benchmark in the highly volatile digital asset markets, CCData's DA Fixings is rooted in the methodology of stock exchange closes, introducing a layer of standardisation. This approach aims to provide a robust and representative end-of-day reference price, empowering institutional players and contributing to transparency and stability in the digital asset landscape.
In this blog post, our Co-Founder and Chief Technology Officer, Vlad Cealicu, discusses the importance of end-of-day reference pricing for digital assets, explaining the challenges associated with this area and how CCData is addressing them with our Digital Asset (DA) Fixings Benchmark Family.
In conventional financial markets, the closing price of a stock isn’t just the final trading price of the day — It’s a reference point that serves multiple functions. Mutual funds and ETFs, for example, base their net asset value (NAV) calculations on these closing figures, making them crucial for investors who are buying or selling these financial products.
For those in the digital asset sector, the lack of a standardised closing time can be problematic for firms operating in the digital asset space, especially for those looking to conduct effective risk management and investment strategy optimisation.
Beyond valuation, these prices also serve as a touchstone for performance evaluation, enabling analysts to make sense of market trends, as well as serving as a solid foundation for a plethora of financial services. Given their importance, stock exchange closing times are subjected to stringent regulatory guidelines. These regulations ensure that the closing prices are not only reliable but also resistant to market manipulation.
The digital asset sector is markedly distinct from that of traditional financial markets. First and foremost, It operates continuously, lacking a standardised closing time, which presents significant challenges in establishing a reliable valuation metric.
This absence of a universal closing price poses considerable difficulties in several areas, including asset valuation, auditing, and financial reporting. One can imagine the complexity involved in auditing a market that operates 24/7, where asset values can fluctuate dramatically within brief intervals and differ across trading venues.
To address these challenges, CCData has introduced its DA Fixings Benchmark Family. This innovative index provides a reliable and standardised valuation marker for digital assets, akin to the closing prices in stock markets. By doing so, DA Fixings aims to provide stability in the volatile digital asset industry, facilitating consistent asset valuation and paving the way for a more organised and equitable trading environment.
The index stands as of consistency in the digital asset market. Its mechanism captures 10 minutes of price updates, providing a detailed and accurate view of market dynamics. Specifically, when given a date (YYYY-MM-DD), a specific time (HH:MM), and a timezone, the endpoint calculates an average price based on a precise window of data.
This window includes 5 minutes of data before the specified time (HH:MM) and 5 minutes after. During this 10-minute period, data is aggregated from CCIX on a per-minute basis. Each minute’s closing value is taken into account, and these values are then averaged to produce a single, comprehensive figure. This allows us to provide not just a snapshot but a robust, time-stamped valuation point for each respective digital asset.
CCIX, The CCData Aggregated Index, is a real-time index calculation methodology developed by CCData to provide cryptocurrency traders and investors with the most accurate price estimation for valuing their portfolios at any given moment. This proprietary index utilises a 24-hour volume-weighted average calculation, enhanced by a time-penalty factor and an outlier methodology, aggregating data from 250+ exchanges.
By utilising CCIX as our foundational layer, CCData can exclude irregular data, prioritising the most reliable and trustworthy sources. This approach guarantees that our valuations represent a detailed and accurate picture of an asset’s value at a specific moment, rather than just a simple average.
Through the implementation of features such as a 24-hour volume-weighted average, Time Penalty Factor, focus on direct trading pairs, and stringent outlier detection, CCIX methodology enhances the robustness of DA Fixings.
DA Fixings offers a practical valuation standard that effectively navigates the volatility of digital assets and the steadiness of traditional markets, filling a key gap in digital finance. Enhanced by the CCIX methodology, it not only meets, but enriches this standard, contributing to a more reliable and sophisticated digital asset space.
DA Fixings presents a diverse range of use cases, encompassing asset valuation tools for hedge funds, a crucial role in providing timely and accurate data for smart contracts in decentralised finance, and offering a reliable suite of valuation benchmarks for streamlined compliance and auditing processes. See some examples below:
Asset Valuation: DA Fixings provides hedge funds and asset managers with a reliable asset valuation tool, incorporating key features from our FCA authorised methodology including a 10-minute time-weighted average and 24-hour volume-weighted average from the CCIX methodology for accurate, market-reflective prices. Its focus on direct trading pairs, along with stringent outlier detection, guarantees precise and up-to-date valuations, essential for effective risk management and investment strategy optimisation.
Smart Contracts: In the evolving world of decentralised finance, smart contracts require timely and accurate data for their effective functioning. DA Fixings serves as an essential tool, facilitating the creation of automated agreements that are both responsive to time-sensitive market changes and highly reliable. This role is crucial in ensuring that smart contracts maintain their relevance and trustworthiness in the rapidly changing digital finance landscape.
Compliance and Auditing: By offering a consistent and auditable suite of valuation benchmarks, DA Fixings becomes an invaluable tool for institutions wading through the complexities of financial reporting and auditing. Its transparent and verifiable data aids in simplifying compliance processes, ensuring institutions adhere to regulatory standards with greater ease and accuracy.
Fund managers: DA Fixings provides end-of-day portfolio valuation and Net Asset Value (NAV) calculation, essential for determining accurate fund values.
Exchanges: Based on a 10-minute time-weighted average, DA Fixings provide exchanges with reliable and robust underlying settlement prices for their exchange tradable products.
Regulators: Transparent fair value and verifiable data aids in simplifying compliance processes, ensuring institutions adhere to regulatory standards with greater ease and accuracy.
Accounting: By offering a consistent and auditable suite of valuation benchmarks, DA fixings becomes an invaluable tool for institutions wading through the complexities of financial reporting and auditing.
In essence, DA Fixings by CCData serves as a foundational pillar for bridging the gap between the Digital Assets and the traditional finance industries. Its multidimensional approach to asset valuation — be it through data aggregation, time-zone flexibility, or the robustness of its integrity checks — establishes a new gold standard. Both individual and institutional investors stand to benefit from this level of reliability and integrity, further cementing the role of digital assets in the global financial ecosystem.
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