For token projects, a well-functioning crypto market making system is crucial for attracting traders to the project. A high level of liquidity, low volatility and a smooth market can make the token more attractive to investors and traders, which can then lead to positive sentiment and increased demand for the project’s assets.
In order to make a transaction happen, buyers and sellers must agree on a price for the digital asset being traded. The difference between the highest buyer price and the lowest seller price is known as the bid-ask spread, and it’s a crucial indicator of liquidity in the market. If the spread is wide, it means that the market is illiquid and less active. For this reason, projects with illiquid tokens often opt for market making services to boost their trading volumes and attract more investors and traders to their tokens.
To achieve this, the crypto market making for token projects quotes both buy and sell orders in the order book of the exchange they’re working on. This way, the token’s liquidity is constantly being provided and the overall market conditions are improved. For instance, tighter spreads can encourage traders to trade more of a particular token and this may have a positive impact on the project’s market cap.
There are different types of market making strategies and it’s important that a project understands the differences to choose the right one for them. For example, delta neutral market making is a strategy where the market maker’s position’s overall delta (i.e. its sensitivity to price movements) is equal to zero. This reduces the risk of significant losses in case prices fluctuate heavily.
Another strategy is to place limit orders in the order book that will be executed automatically at key price levels. This will help to absorb small trades and reduce the price volatility, which can be a problem for some token projects with low trading volume. A well-chosen market maker will also be able to manage the flow of orders to prevent them from being frontrun by external parties and to protect their capital from malicious flows like pump and dumps.
In addition, a good market maker will have a solid track record of reliable order execution and a low incidence of system outages or technical glitches. This is particularly important for smaller, more illiquid tokens, which can easily become victims of bad market conditions and get swept up in uncontrollable volatility.
For all these reasons, it’s vital for projects to partner with a market making firm that has experience in the industry and strong connections to the major crypto exchanges. This is why it’s worth choosing a designated market maker like GSR or Bluesky, which have been in the business for years and have seen some of crypto’s most turbulent periods. Moreover, such firms have the resources to be resilient against these events and maintain their market-leading positions in the long run. This is what sets them apart from the rest.