Market makers have been a part of the traditional financial world for a long time. Their work is mainly required to maintain market stability for traders and investors. The market maker business acts as an intermediary between a public seller and a public buyer in order to provide liquidity and minimize volatility and risk. Having these factors in place leads to more market activity, and less fluctuations between trading spreads.

It is easy to see therefore how important this function is for the survival and overall success of a currency. A recent negative example of this would be how the price of the Binance exchange token (BNB) price fell from $27 to $0,8 on the Poloniex trading platform on November 26, 2020. This abnormal decline in price could be attributed to the lack of proper market making and liquidity systems in place. The fact that BNB is also a top 5 cryptocurrency by market cap demonstrates how quickly a token can collapse without the necessary support.

One could imagine how market making is even more vital for startups and new projects in the marketplace. As such in any given tokenomics model there must be a significant percentage of ‘rewards’ allocated for liquidity providers. Simply put, these are the people (whether whales, sharks, or goldfish) that will be contributing their capital to bootstrap your token. So if you aren’t able to incentivize them adequately enough then they will look elsewhere to find more ‘mouth-watering’ APY’s.

Top DEX’s (Decentralized Exchanges) and AMM’s (Automated Market Makers) assist in this process, by enabling non-custodial and permissionless transfer of assets between tokens of the same blockchain. Pairing with a given blockchain’s native token (such as ETH, MATIC, or BNB) will give you the best opportunity for seamless exchanges, while other high priced tokens (Wrapped bitcoins, or AMM native tokens) can provide stability and add value to your token.

So without further ado, let’s get into the top three reasons why you must partner with a market maker for your cryptocurrency token.

Reason #1: ICO or IDO Listing

In "traditional" capital markets, listing a company on a publicly traded exchange with an IPO (Initial Public Offering) would be the crypto equivalent of getting your token listed on Uniswap or Pancakeswap. ICO’s (Initial Coin Offering) could be likened more to a company doling out shares (in the form of crypto tokens) to their shareholders, while IDO’s (Initial DEX Offering) aim at getting a token listed on an exchange for the purpose of liquidity among others.

However as in the “traditional” finance space, getting a token listed on a ’big-time’ crypto exchange entails a plethora of costs along with due diligence processes to ensure the exchange is not getting saddled with an unproductive token. Having market makers active on your token from the outset will give your token credibility and the volume required to have a worthwhile ICO or IDO.

Reason #2: Attracting Investors with Increased Liquidity

Businesses that have tried to raise capital before will understand that what most investors look for is, well, other investors. The reason being is to ensure that their capital is not going to be wasted or swindled away unexpectedly. The same holds true in the crypto space, where having the element of trust present with transparent numbers (i.e. 7 figures in market cap, 8 figures in total value locked) can make all the difference for attracting further investors.

These initial outlooks of liquidity can act as a magnet for investors to either attract (if the numbers are favorable) or repel (if the numbers are inadequate). Other factors including wide order book spreads can limit the investment and trading strategies. Having a market maker will help produce tighter spreads that generate higher volumes, and therefore attract the ‘big fish’. Stability and low volatility are all positive characteristics associated with market making activities.

Reason #3: Reviving an old token or developing a new use case

It’s not uncommon at all in the crypto world for a currency to gain significant traction only to be ‘sideswiped’ by unforeseen circumstances and find the token value sitting at $0.000. Whatever the situation may be, supercharging your token with market making can be certain to breathe life back into it. Putting a more thorough strategy in place that emphasizes market making can get positive momentum swinging back in your direction.

Concluding Thoughts:

As a crypto project your goal should be to create a self-sustaining economic ecosystem. In order to survive, you need a constant exchange of value in the form of consistent liquidity. This won’t be possible without an exchange to transact, or a central market maker function that can develop an effective market system.

Ideally tokens should look for platforms that enable buy and sell orders to be executed at any time without causing significant price fluctuations or diminishing market liquidity. Most successful startups listed on main exchanges work with market makers, and would probably attribute this for being one of the major causes behind their success.

Written by: Jacob Isenberg

Client: Ancore Strategy

Market makers have been a part of the traditional financial world for a long time. Their work is mainly required to maintain market stability for traders and investors. The market maker business acts as an intermediary between a public seller and a public buyer in order to provide liquidity and minimize volatility and risk. Having these factors in place leads to more market activity, and less fluctuations between trading spreads.

It is easy to see therefore how important this function is for the survival and overall success of a currency. A recent negative example of this would be how the price of the Binance exchange token (BNB) price fell from $27 to $0,8 on the Poloniex trading platform on November 26, 2020. This abnormal decline in price could be attributed to the lack of proper market making and liquidity systems in place. The fact that BNB is also a top 5 cryptocurrency by market cap demonstrates how quickly a token can collapse without the necessary support.

One could imagine how market making is even more vital for startups and new projects in the marketplace. As such in any given tokenomics model there must be a significant percentage of ‘rewards’ allocated for liquidity providers. Simply put, these are the people (whether whales, sharks, or goldfish) that will be contributing their capital to bootstrap your token. So if you aren’t able to incentivize them adequately enough then they will look elsewhere to find more ‘mouth-watering’ APY’s.

Top DEX’s (Decentralized Exchanges) and AMM’s (Automated Market Makers) assist in this process, by enabling non-custodial and permissionless transfer of assets between tokens of the same blockchain. Pairing with a given blockchain’s native token (such as ETH, MATIC, or BNB) will give you the best opportunity for seamless exchanges, while other high priced tokens (Wrapped bitcoins, or AMM native tokens) can provide stability and add value to your token.

So without further ado, let’s get into the top three reasons why you must partner with a market maker for your cryptocurrency token.

Reason #1: ICO or IDO Listing

In "traditional" capital markets, listing a company on a publicly traded exchange with an IPO (Initial Public Offering) would be the crypto equivalent of getting your token listed on Uniswap or Pancakeswap. ICO’s (Initial Coin Offering) could be likened more to a company doling out shares (in the form of crypto tokens) to their shareholders, while IDO’s (Initial DEX Offering) aim at getting a token listed on an exchange for the purpose of liquidity among others.

However as in the “traditional” finance space, getting a token listed on a ’big-time’ crypto exchange entails a plethora of costs along with due diligence processes to ensure the exchange is not getting saddled with an unproductive token. Having market makers active on your token from the outset will give your token credibility and the volume required to have a worthwhile ICO or IDO.

Reason #2: Attracting Investors with Increased Liquidity

Businesses that have tried to raise capital before will understand that what most investors look for is, well, other investors. The reason being is to ensure that their capital is not going to be wasted or swindled away unexpectedly. The same holds true in the crypto space, where having the element of trust present with transparent numbers (i.e. 7 figures in market cap, 8 figures in total value locked) can make all the difference for attracting further investors.

These initial outlooks of liquidity can act as a magnet for investors to either attract (if the numbers are favorable) or repel (if the numbers are inadequate). Other factors including wide order book spreads can limit the investment and trading strategies. Having a market maker will help produce tighter spreads that generate higher volumes, and therefore attract the ‘big fish’. Stability and low volatility are all positive characteristics associated with market making activities.

Reason #3: Reviving an old token or developing a new use case

It’s not uncommon at all in the crypto world for a currency to gain significant traction only to be ‘sideswiped’ by unforeseen circumstances and find the token value sitting at $0.000. Whatever the situation may be, supercharging your token with market making can be certain to breathe life back into it. Putting a more thorough strategy in place that emphasizes market making can get positive momentum swinging back in your direction.

Concluding Thoughts:

As a crypto project your goal should be to create a self-sustaining economic ecosystem. In order to survive, you need a constant exchange of value in the form of consistent liquidity. This won’t be possible without an exchange to transact, or a central market maker function that can develop an effective market system.

Ideally tokens should look for platforms that enable buy and sell orders to be executed at any time without causing significant price fluctuations or diminishing market liquidity. Most successful startups listed on main exchanges work with market makers, and would probably attribute this for being one of the major causes behind their success.

Written by: Jacob Isenberg

Client: Ancore Strategy