Since then, crypto has become the most popular topic to talk about. Now the world is familiarized with cryptocurrency. Since the pandemic struck, people have tended to search for activities and earnings at home, and cryptocurrency is their answer. Not to mention the Bitcoin price that plummeted to its peak is also intriguing. Although now Bitcoin falls hard, investors are waiting for BTC to recover. They’re waiting for the upcoming BTC burn in 2024, possibly bringing BTC to a new all-time high.
So what’s next for blockchain development in the future? Web 3.0 is a definite answer. Anything else? Well, there are a lot of possibilities when it comes to blockchain technology. But now we won’t talk about the Bitcoin price and any token price performance; we’re here to talk about the importance of market markers for crypto startups.
Market Making: What Is It?
A trader who engages in market-making delivers liquidity to buyers and sellers on a financial market at the same time. How quickly one can purchase or sell an asset without materially changing how steady its price remains depends on how liquid that asset is. By quoting prices for both buying and selling an item, market makers “create a market.” By acting as a buyer and seller of last resort in situations where there would ordinarily be none, the crypto market maker (or liquidity provider) creates liquidity.
Why are Market Makers Necessary?
Market makers help with fair price discovery and lower price volatility, which makes financial markets more effective. The process follows: The bid-ask spread is the difference between the best bid and the best ask for a specific item. Low-liquidity markets typically have large bid-ask spreads in their order books. The amount traded directly varies depending on the spread’s size, with a narrower spread often translating into more volume transacted. By posting tighter spreads, a market maker does nothing more or less than facilitate tight markets.
The quantity of an asset that may be acquired at a specific price level, or order book depth, is another aspect of an asset’s liquidity in addition to the bid-ask spread. In the aforementioned scenario, a trader might purchase and sell many thousand dollars’ worth of bitcoin at a negligible loss (.00001%). On EOS, however, a trader would immediately experience an 8% loss on their investment if they bought and sold a small quantity of the currency. The loss would be significantly more significant if they intended to purchase and sell EOS for a few thousand dollars, i.e., moving farther down the order book. This is a vital measure to take into account that has a significant influence on a project’s viability as ventures fight for the attention of institutional participants.
Read also : The Future of Market Making: Some Thoughts
Benefits of Tokens: Lowering Friction
Markets for cryptocurrencies are currently inefficient. As a result, trading becomes difficult in a setting where friction, or the direct and hidden expenses of doing business, is considerable. Because token issuers suffer because they require a seller if someone wants to purchase and a buyer if someone wants to sell. This isn’t always the case in the crypto world, especially concerning obscure tokens. Market makers provide traders with well-organized and affordable entry points, reducing the friction for those looking to engage in the market.
Increasing the Token Ecosystem’s Growth
Most initiatives base their business strategy and adoption goals on the usefulness of their coin. A robust token economy is supported by the market maker, who makes sure there is always a prospective buyer and seller for the token. A market maker’s services allow token issuers to concentrate on developing their technology and promoting market acceptance, which is a significant benefit.
Exchanges Price Discovery & Real Volume Benefits
The market maker’s objectives are to increase order book volume, reduce spreads between trading pairs, and provide liquidity. Ultimately, what draws traders to exchange is volume and intriguing initiatives. Unfortunately, several exchanges promote “false volume” to attract enterprises and investors directly or indirectly. Using a trustworthy market maker, volume manipulation may be curbed while price discovery and order fulfillment are promoted. Healthy order books thus boost investors’ faith in the exchange, which is essential in such a turbulent environment.
Questions and Considerations
Unfortunately, some businesses engage in dubious trading practices under the pretense of “market creating,” which poses difficulties for tokens. For instance, market makers without experience in conventional financial goods tend to overpromise and bind token issuers to dubious wash trading schemes. Others may make pricing or volume objectives immoral and impractical to accomplish in a competitive market.
Financial markets must function successfully to allow traders and investors to acquire and sell assets conveniently and affordably. Without market makers, there would be fewer transactions, resulting in a reduction in the overall efficiency of markets. Because of this, market-making has always been a crucial component of conventional market infrastructure. It will continue to impact us as long as we trade financial assets.
Any institutional-grade market maker will conduct business using algorithms that integrate with exchange APIs and programmatic execution to build effective markets. A robust API enables market makers to operate more effectively with constant uptimes, delivering steady liquidity.
An effective market maker promotes a thriving token market, enabling projects to develop the future ecosystem for their digital asset. Standard operating procedures must be improved, and bad actors must be eliminated, just like in many other areas of the bitcoin business. Crypto projects will be able to identify a trustworthy partner who works for them by grilling market-making partners on fundamentals like trading strategy, wash trading, and KPIs.
Now, are you interested in creating a new project in the crypto space? Well, that is all we can deliver about market making and its importance for crypto startups. Do not forget to read and fully understand the market maker’s role in your new project if you want your project to be successful and attractive to crypto investors.