I am trying to understand how coinbase - or any other crypto exchange for that matter - handles a situation involving an illiquid coin.

Consider a coin, with exactly two players in the market: a potential buyer proposing a limit order of $x, and a potential seller proposing a limit order of $x+<some_big_value>.

What exactly happens now? How does the exchange settle this? Does it take the spread?

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    Nothing happens. Why do you think something needs to happen? Why do you think the exchange needs to settle this? – user253751 Dec 22 '20 at 18:35
  • @user253751 I thought the exchange would take the spread or something, like in the screenshot – nz_21 Dec 22 '20 at 21:06
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    @nz_21, why would the exchange do that? A buyer offers $10, the only seller wants $15; so there's no transaction. Unless the fees were substantial enough for the exchange to profit from bridging that gap why would anyone get involved with a buyer and a seller who can't agree on price? – quid Dec 22 '20 at 21:15
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    @nz_21 You made this same mistake in your other question. There is no "spread" to take. The buyer is only willing to pay X, the seller wants X+Y. Neither is forced to buy/sell at a price they don't want, so no transaction happens and there is no "spread" to take. Both will wait until someone wants to transact at their price (or better). – D Stanley Dec 22 '20 at 21:26
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    There would only be a spread to "take" if someone is willing to buy at X and someone else is willing to sell for less than X. But even then, the exchange would not "take" the spread (although some front-running high-frequency trader might) – D Stanley Dec 22 '20 at 21:28

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