Real-time Data Feeds for Regulatory-Compliant Crypto Indices
A Case Study with Compass Financial Technologies
(4 min read) This case study will explore how Compass Financial Technologies leverages Kaiko’s real-time data feeds to power a suite of regulatory compliant and innovative crypto indices.
Overview
Compass Financial Technologies is an expert in the business of financial indices, managing hundreds of indices on a range of asset classes linked to several billion USD of investment products.
To support the exponential growth of digital asset markets, Compass built a suite of regulatory-compliant digital asset indices designed for the next generation of institutional investors and financial products. Compass index services are already used by major players such as CoinShares and XBT Provider and their new flagship index suite covers 18 of the biggest digital assets, powered by Kaiko data.
Customer Challenge: Regulatory-Compliant Data Feeds for Index Calculation
As a registered index provider, Compass needed access to reliable, high-quality, and granular data feeds to ensure compliance with EU Benchmark Regulation (BMR), a set of rules pertaining to the calculation and administration of indices.
Compass is an expert in the indices industry, with years of experience building commodity indices and real estate indices. Thus, they knew that data was the key component to building and maintaining highly-reliable, regulatory-compliant indices.
However, digital asset markets are highly volatile and frequently disjointed, which means special attention must be made to the volatility and liquidity of each market. Indices power investment products so if price feeds are faulty, this can seriously affect investors. Thus, access to high-quality and highly-granular data feeds from a range of liquid markets is essential in the creation of indices powering investment products and for gaining regulatory approval.
The Solution: Kaiko’s Real-time Data Feeds
Compass selected Kaiko as their official data provider for their suite of digital asset indices. Compass leverages Kaiko’s real-time REST API to access granular and normalized trade data feeds from dozens of exchanges.
High-level architecture of Kaiko's data infrastructure.
As a calculation agent and administrator of indices, Compass’s job is to create robust methodologies for their clients that can withstand and adapt to changing market conditions. This includes outlier detection, time weighting, volume considerations, order book liquidity changes, and more. The goal is to determine the most accurate price possible for an asset, which is only possible with access to data feeds across a range of markets.
“Having access to Kaiko’s granular data in a standardized format was crucial to build and calculate our indices” said Compass’s CEO Guillaume le Fur. Compass plugs into Kaiko’s trade data API endpoints to receive standardized data feeds in real-time across the most liquid crypto markets.
Kaiko's Enterprise-grade REST API
{Trade Data}: Live and historical tick-by-tick trade data, including every executed transaction on an exchange.
{OHLCV Candlesticks}: Live and historical [Open, High, Low, Close, Volume], in granularities ranging from 1 second to 1 day.
{Order Book Snapshots}: Limit order book snapshots, updated twice per minute, with every bid and ask placed within 10% of the mid price
{Reference Rates}: A composite price for a crypto asset aggregated across exchanges. Fiat conversions available.
The Product: Reference and Volatility Indices
Compass’ new reference indices offer a BMR-compliant closing value that can be used as benchmarks on financial products like ETPs.
They offer reference indices for 18 digital assets and this number will grow. They have also launched a set of volatility target indices, which are very popular on other asset classes and are particularly relevant for highly-volatile digital assets. Their volatility target indices provide dynamic exposure to markets while controlling for volatility and mitigating the drawdown.
With their comprehensive suite of indices, Compass bridges the gap between the digital asset ecosystem and the traditional financial industry.
Compass' crypto indices.
Conclusion
Digital asset data providers like Kaiko are crucial partners for traditional financial providers who are building regulated investment products. Ultimately, regulatory-compliant indices with high-fidelity data feeds will enable these markets to reach the next level of maturity.
About Kaiko
Founded in 2014, Kaiko is a market data provider in the blockchain-based digital assets space, providing institutional investors and market participants with enterprise-grade data infrastructure. We collect, normalize, store, and distribute digital assets market data via a livestream WebSocket, REST API, and cloud-based flat file (.csv) Data Feed, to which clients connect to build data-driven applications.