Market Making on the Binance DEX
I am excited about the Binance DEX and if you are in crypto you should be too. Here is why:
Ethics and Fair Trade
This is the #1 reason I am excited about the Binance DEX. I’ve met a few people at Binance and am fired up to see how passionate they are about creating a future of fair and ethical trade in crypto. This means no price manipulation and no wash trading among other things. The DEX technology gives a new level of transparency to trading activities and the Binance team polices the shit out of trading. If you are wash trading they will call you out on their community page as well as reach to you directly. I love love love this. We need to get the bullshit out of crypto.
Diligence
The Binance team runs each listing candidate project through a diligence process. The applications for listing are posted to their community for all to see. Here is the link. I personally use this data to determine if I think the project is worth my time as a prospect for the market-making services we provide at Efficient Frontier. This is not everything we consider. It's a good starting point.
Hype
The Binance DEX is the hype right now. We all need to hype it more and spend our time trading here vs elsewhere. The bullshit that is going on across too many of the centralized exchanges (wash trading, pumping) needs to stop. Listing on the DEX right now gives you a degree of street cred in crypto. The time is right. Let's all help push the volume here.
Competition for free listing on the Binance CEX
I am personally working with two clients in the current round of the competition and will be supporting an additional two more for the next round. Projects that reach a broad set of criteria (quality of team, tech, marketing presence, community and health of the DEX markets among other factors) will be judged to win. This is a great opportunity for the top projects to receive great value through a free listing on the Binance CEX.
The problem is that too many token issuing executives I talk to are over designing their company market strategy around the free listing. If your strategy depends on a free CEX listing you are not ready to make your asset tradeable. You need to have the financing to support additional exchange listings, marketing programs on those exchanges, your Green Shoe strategy ect.
Managing your order books for the win!
Once you’re in the competition you’ll need a market making service provider to grow a healthy market and you’ll certainly need one to win. KPIs Binance is looking at are tight spreads, low price slippage as well as order book depth and thickness. This is how market-making should be measured. If you want an order book that is inviting to traders and stands up solidly to these metrics you’ll need market making. Further, you’ll need an ethical approach to market making or you will get called out by Binance.
What does it take to win?
As I make these comments I only consider the market making elements to the competition. Go look at the order books of the tokens trading on the DEX who have over $50k a day in trade volume. Measure the average daily spread and average daily price slippage of these tokens. This will give you a set of benchmark KPIs against which to formulate your market making strategy. If you reach out to me chris@efrontier.io we will help you with this. Then study the top traded assets and see what they are doing as a business now. How big is the team? What does their social presence look like? What level of financing do they have already? How do you stack up?
Price Discovery Strategy (Green Shoe)
In the traditional stock markets there is the concept of a Green Shoe strategy. This is money provided by the investment bank to support a certain price for a defined period of time at the initial launch of an asset so that the market can discover price without extreme price volatility. Defining the Green Shoe strategy for digital assets is the strategy that crypto CEOs tend to stress over the most as it relates to launching a digital asset.
This is a very important topic worth a long article on its own.
The point I make here to the CEO is that you have to be extremely rational about the budget you allocate to this. For every additional dollar you consider putting to your Green Shoe strategy you have to ask yourself — “If this money goes down the drain would I have been better off using it to hire more staff, pay rent etc.”. I push every CEO I meet to lean hard on the conservative side of budgeting for this strategy. There are WAY too many people in crypto advocating for $1mill plus budgets for this. This is ridiculous when you’ve only raised $5mill or less — which is the more common financing levels I am seeing these days in crypto. We can help you calculate your strategic options based on token price and vesting scenario analysis as well as market conditions scenario analysis.
Dead Coins — Building markets is more than just market making
This is a tough one. I just got off of a call with a CEO who’s token is trading about $100 a day on the DEX. He wants to know what market making strategy we can put in place to make this market “really take off”. This is another conversation I’ve had far too often, not only related to the DEX. When I see this situation I tell the prospect there is nothing we can do. If you don’t have awareness in the crypto community, if you have not created relationships with crypto investors, if you don’t have a meaningful marketing function, if you don’t have a business model people can understand and see coming together you are not going to have a market no matter what market making strategy you put in place.
A bit up humble pie…
That's enough for now. Let me know if we can help. Hit me at chris@efrontier.io
Looking forward to hearing from you.
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