With their expertise and experience, market makers form the backbone of the market. They buy and sell assets at any time, creating bid-ask spreads in a market.
They are often referred to as ‘liquidity providers’ simply because their main purpose is to keep the markets moving and ensure that buyers and sellers always exist for all assets within the market in which they operate.
Market makers are indispensable. While they may not always be transparent about the trading lifecycle, they are always there, operating behind the scenes, using complex algorithms and arbitrage strategies to keep the market ticking over.
Market makers are not just profit seekers; they are market shapers. They enable liquid and smoothly running markets, increase market liquidity and depth and create supply and demand.
In traditional markets, Citadel Securities, Virtu Financial, and Jump Trading are some of the most widely recognized market makers in the world, although Morgan Stanley is a market maker on the NASDAQ.
In crypto, market makers also strive to ensure sufficient liquidity in the market in which they operate to ensure sufficient trading volume for seamless transactions. With them there would probably be more liquidity. They play a crucial role in the crypto market and often cause significant token fluctuations.
Market makers can be broadly divided into project consultants and traditional market makers. Although both types aim to ensure market liquidity, they work differently.
Market makers who act as project advisors help launch projects. They contribute to success in critical areas such as robust token economics and token generation event (TGE) construction, successful token listings and fundraising.
On the other hand, traditional market makers do not participate in low market value projects and perform a range of tasks such as supporting market liquidity, narrowing the gap between supply and demand, and promoting efficient trading.
Market sentiment and trends determine which strategies market makers will adopt. During an uptrend or bull market, they create FOMO (fear of missing out). In the bear market, they generate fear among traders to force traders or hodlrs to dump their tokens.
The good and the bad
As with everything, in the crypto market there are market makers who only take tokens from startups and sell them, but others like Gotbit for example add enormous value to the project they are working with.
“Prominent projects have achieved success thanks to their teams and technology, because they solve real-world problems and have great market makers behind them,” said Alex Andryunin, CEO and founder of Gotbit.
Great market makers, he added, “help with all aspects of a project, including marketing, tokenomics design, business development and token generation events, among other very critical areas,” Andryunin added.
Gotbit’s CEO said that ethical and well-intentioned market makers “help ensure the health of the crypto market, and by supporting liquidity, reducing spreads and ensuring fair markets, they help facilitate global tokenized economies.”
He said that for startups and projects, “market makers like us help projects thrive and achieve success for themselves and their communities. Through greater transparency, market makers will help all market participants, especially token issuers, make more informed decisions.”
Market makers are not allowed to directly influence the price of tokens because if they do, crypto exchange operators usually notice. This could lead them to restrict tokens from their platforms and report them to authorities, who could decide to revoke their licenses, Andryunin said.
“I am not going to name and shame any of my competitors, but there are some who deliberately influence the price for their own profit, which is considered market manipulation, and that is illegal and punishable,” he said.
Andryunin said big market makers should refrain from cooperating with each other. “They have no right to do that. It is seen as fraud, but ultimately it is not financially profitable.”
Alex Andryunin also clarified that wash trading should not be seen as market making. “Let me explain: WW is a manipulation technique where unethical traders attempt to drive up the price of a token by artificially increasing its trading volume. What wash traders do that market makers do not do is send crypto to various wallet addresses they control to give the false impression of massive trading activity and demand.”
That said, some companies pretend to be market makers but are not, because they buy, copy or create software that is essentially wash-trading bots, Andryunin warned. “As a rule of thumb, hiring these types of market makers is a recipe for the collapse of any project.”
He emphasized that projects must ensure that their market makers are performance-oriented. “An ethical and success-oriented market maker earns when its customers earn, unleashing others who operate on a desire model and getting tokens they can control themselves.”
Building on success stories
Gotbit has helped more than 500 projects achieve success in the last six months, including in particular Hamster Kombat Hamsters, with more than 3.00 million in three to four months, and BONK, a memecoin that has reached 56th place in a very short time on CoinMarketCap with a market cap of $1.3 billion and a price increase since launch of over 17.00%.
“One of the reasons we’ve been so successful with our partners is because we build on all of our expertise, and we create playbooks that take the success stories of the projects we work with and tailor them to each of our diverse clients,” said Alex.
While the success of any project depends on the team, community building, transparency and reinvestment in quality crypto exchanges and marketing, market makers are essential. More important is making sure you have the right market maker because they are the secret weapon of all blockchain projects.