Despite fantastic marketing and groundbreaking features, most tokens face a common obstacle — the “cold start” challenge. During this initial phase, with a limited number of buyers and sellers, you’re likely to encounter thin order books, wide bid-ask spreads, and unpredictable price swings, all of which can significantly increase the asset’s volatility, which is really hard to handle without a right marker maker.
If you are unsure why your token requires a market maker and how to select the perfect one for your project, you’ve landed in the right spot. We’re about to embark on a journey through this often-overlooked facet ofcrypto success.
🟠 What Is a Market Maker?
In plain crypto language, market makers are the ones making sure the trading gears never stop turning. Market makers do this nifty dance where they buy and sell your tokens, all to guarantee there’s a lively crowd eager to trade with you. Without them, your token could be stuck in the desolate wasteland of zero liquidity. And trust us, that’s not where you want to be.
Now, market making is far from being a walk in the park with a simple trading bot. While custom-built trading software is vital, it all kicks off with profound insight and strategy selection by the market maker. This task demands deep expertise to carry out in-depth technical analysis, factor in market conditions, and then pinpoint the ideal token launch\ trading strategy.
In essence, market makers render valuable services to projects, ensuring assets remain liquid, mitigating short-term volatility, and enabling swift transactions for traders.
🟠 Why Your Token Needs a Market Maker
Liquidity & tight spread
Liquidity keeps your token alive. The absence of liquidity, coupled with low trading activity and a substantial gap between buy and sell prices, deters traders and investors from engaging with your asset.
A good market maker not only provides this constant trading ability but maintains narrow spreads and a well-balanced order book. This is important because it makes trading cheaper for everyone. When trading costs less, more traders and investors want to get involved. This, in turn, raises organic trading volume.
Healthy Price Chart
A lively price chart is an indicator that your token is thriving. Market makers are responsible for preserving your token’s price stability, warding off turbulent price swings that could send potential investors running.
Reviving an old token
No matter what’s causing the liquidity dry spell, if your project is in full swing and your token’s on the exchange, there’s still hope that market-making can be the shot of adrenaline the token needs. By implementing a robust liquidity strategy and pairing it with some rejuvenated project marketing, you often have the recipe for reigniting your community and transforming that token into a triumphant tale over time.
🟠 How to Choose the Skilled Market Maker
Choosing a market maker is not a decision to take lightly. Here’s how to ensure you pick the right one for your project.
Expertise
Look for a market maker with a solid track record and vast experience. They should not only understand the specificity of your project but also be well-versed in your target market and the financial sector as a whole. They can provide insights into the current market landscape, including the best timing for your token launch and the most suitable exchange for your specific case.
A good market maker uses software and algorithms backed by skilled development teams and professional traders with years of experience in the industry.
In the crypto realm, having a market maker who’s been in your shoes can be especially advantageous. If the market maker’s team has previously issued tokens, they will most likely bring invaluable expertise to the table, fueling your token’s success. A good example is Peanut.trade. They have built their projects: Remme, which reached over $60M in fully diluted valuation, while Peanut NUX peaked at over $1B, so they know what it takes to launch the token.
Transparency
Transparency is a pivotal factor when assessing a market maker. A reliable market maker should be transparent in their fee structure, risk management methods, communication, and reporting.
Real-time adaptability to market conditions
In the world of crypto, where markets are both volatile and active around the clock, it’s essential for a market maker to be capable of swift adjustments. They achieve this by continuously analyzing real-time market trends, trade volumes, and news sentiment. Access to real-time data equips market makers to remain competitive and agile, responding promptly to ever-changing market dynamics.
Automated trading capability
A trustworthy market maker uses automated algorithmic trading and cutting-edge software solutions to execute orders with precision and efficiency. This technology enables them to manage high volumes of trades concurrently, enhancing liquidity provision and ensuring the seamless operation of the market.
Connectivity to CEXs
Partnering with a market maker who collaborates with multiple Centralized Exchanges (CEXs) is beneficial, whether your token is already listed or you’re in the planning stage. They not only assist in listing your token but also provide guidance on selecting the ideal CEX for the specific launch of your token.
Expertise in DEXs
It goes without saying that a decent market maker should understand the listing on DEXs very well. And, of course, the expertise in DEXs listing goes well beyond merely providing liquidity to a pair. A skilled market maker will carefully plan your token’s listing, deciding whether it’s best to start with a DEX or CEX and which ones to choose.
The common practice is to kick off listing on DEX first due to its transparency, which is favored by the crypto community. However, it’s worth noting that CEXs offer higher liquidity. It’s a delicate balance, and a proficient market maker should have a well-thought-out strategy for your token’s listing.
Feedback on your marketing efforts
Skilled market makers can offer valuable quantitative feedback regarding the impact of your marketing activities on the order books. For instance, they can measure the extent to which a major announcement influences buying demand for your token. Moreover, they can provide projections on how the current hype surrounding your token might affect buying and selling pressures on the launch day.
Regulation and Compliance
As financial intermediaries, market makers must adhere to regulations in the jurisdiction where the company is registered. This ensures that they operate in accordance with market standards, comply with established regulatory frameworks, and steer clear of dubious practices.
Risk Management
Assess the market maker’s risk management tactics, especially their methods for hedging positions to minimize potential losses.
Costs
While the specific fees for market-making services can differ depending on the situation, it’s important to consider the pricing structure and incentive model when choosing a market maker. It’s crucial to ensure thatthe market maker is motivated to provide effective liquidity services rather than merely pumping the token and quickly selling it for personal gain.
Collaboration with a market maker should be a mutually beneficial strategy.
🟠 How to Measure the Performance of Your Market Maker
Measuring your Market Maker’s performance is an ongoing process. Consistent monitoring and collaboration are essential for maintaining an efficient and successful market-making strategy for your token. Pay attention to the following:
Spreads — Tightness, or spreads, are the core metric to hold the market-maker accountable for. With top-tier cryptocurrencies and stablecoins, there should be the tightest spread of %0.05 -%0.1, while the rest of the pairs will begin to range from 0.1% to 0.3%.
Slippage Analysis — Determine if significant slippage occurs. Slippage is the difference between the expected price and the execution price. Lower slippage indicates efficient market-making.
Volume: Track trading volumes and monitor if they increase as a result of market-making activities.
Price Impact Analysis: Observe how large trades affect the token’s price. An efficient Market Maker should minimize significant price swings during large buy or sell orders.
Transparent profit sharing: the activities performed by the market maker should not be only profitable to the market maker itself but also to its client. Your collaboration should bring profit to both parties.
Order Book Depth: Analyze the depth of the order book. A healthy order book provides assurance that the Market Maker is effectively managing liquidity.
🟠 Choose MM Wisely
The quality of a project is fundamental to its success, but a competent market maker can influence liquidity and, consequently, the initial market perception.
In the crypto world, a market maker can act as your guiding star. They offer the liquidity, stability, and credibility necessary for your token to thrive. So, when planning your token launch, don’t underestimate the role of a market maker. They might just be the secret ingredient that propels your project to success.
The objective of any market-making endeavor should be to bootstrap liquidity for an exchange or token until there is ample interest from traders to foster organic liquidity.