Not All Crypto Market Making Is Made Equal
After 7 months as head of Business Development for Efficient Frontier I’ve learned first hand that not all market making is the same. Not by a long shot.
The target audience for this article: Issuers of cryptocurrency tokens and digital assets.
Take your market making strategy seriously
Marketing making is not something that is either there or not. When done first class, it will be a key component of building and supporting your markets. I’ve heard prospects say, “oh, the exchange we are listing on provides market making”… or “We’ve written a bot that does market making for us”. This will not cut it. We are talking about multi-million dollar differences in results. Here is a previous post I’ve written on this, go on, read it. It’s been quite popular. I hope you like it. Please clap for these articles for me thanks.
What should a market maker be doing?
Market making is an umbrella term. The products and services we provide have outgrown the original definition. Market making in crypto is maturing. Leaders have a full suite of products beyond spread, order density and order thickness management. Get educated on what leaders are doing. If you are interested in learning from us email me at firstname.lastname@example.org
Service is critical
Crypto is wild. Every token’s market behaves differently and each exchange responds slightly differently to different strategies. At least once every 30 days something wild arises with a given token that requires discussion and custom strategies. For example how often is your token getting pumped by a whale, exchange or syndicate of traders? Do you have a strategy and capability to address this?
This is where service is critical. A suite of customizable algorithms designed specifically for these unique scenarios should be in play. Algorithms should be tuned over time for each token and exchange. You should have a team who is there for you 24/7 available on Telegram or other to strategize on addressing an unusual situation.
If an exchange offers market making that is fine however this cannot be the only market making service you employ. More liquidity is usually better but be aware of the following:
- Exchanges offer a limited range of market making capabilities
- The volumes exchanges generate are often not real. If a real investor tries to trade your token they will find they can’t trade as much as they would like to because the trades are not real. When they go to make a purchase the experience a significant increase in their final price over the spot price. Smart investors will walk away.
- A real market maker helps attract real traders and does not generate fake volume.
- Exchanges have way too many customers to give you any focus — set it and forget it. Many exchanges cannot even keep up with support requests when traders cannot withdraw their funds! Where do you fall in this priority!?!?
- An exchange may not be 100% aligned with your interests. We’ve seen the “market making” service of a highly ranked and reputable exchange in crypto massively pump a clients token. We’ve seen market making strategies that don’t provide a good spread. These are just the most simple basics.
Inexperienced crypto firms
Everyone in crypto thinks they are traders. Many of the initial people in crypto are developers. As a result many neophyte traders begin with writing basic “bots” that automate trades. As an evolution, some have then started firms focused on market making in crypto. Or, as mentioned before, some projects have someone who has written a simple algo for very basic market making.
You need a breadth of algos, a robust platform and seasoned navigators of market conditions as your guide. Efficient Frontier has been in high frequency and algo trading for 13 years and in crypto for two years now. Our technology platform is robust and our team is experienced.
I’m just sayin’.
Keeping funds in balance
The common model in crypto market making is that the project provides the funds which the market maker uses to put on the order books. Building a market and keeping your funds in balance on each side of each of your trading pairs is complicated. And what if you have 4, 6 or 50 pairs on the market. This requires the service and customization I discussed above to drive results and not spend all of your money.
Not all market making is the same. I hope this is helpful. You should be talking to us. If nothing else we’ll help you understand where you stand with your current strategies.