A COMPREHENSIVE GUIDE TO THE BEST MARKET MAKERS

In our previous blog, we discussed the importance of selecting the right market maker when issuing tokens in the cryptocurrency market. As a token issuer, having a reliable and reputable market maker on your side can make a significant difference in the success of your token offering. However, with so many options to choose from, it can be overwhelming to determine which market maker is the best fit for you. This blog aims to provide a comprehensive guide on selecting the right market maker for your token issuance needs. We will outline the key factors to consider, such as reputation, experience, regulation, fees, platforms, and experience, and provide practical tips to help you navigate the market-maker selection process with confidence. Additionally, we will also compare some of the best market makers in the industry that are known for their reputation, and experience and highlight the differences in their business models to help you make an informed decision. So, without further ado, let’s dive into the world of market makers and learn how to choose the right one for you.

What to look for when it comes to market maker?

As already mentioned, selecting the right market maker can be crucial for the success of your token issuance, and the process of finding the right one can be overwhelming. However, by keeping a few key tips in mind and knowing what to look for, selecting the right market maker can be easier. When selecting a market maker in the cryptocurrency market, it’s important to consider several factors:

1. Reputation and reliability: When selecting a market maker, it’s important to look for one with a good reputation in the industry. Researching online reviews and forums can provide valuable insight into the experiences of other token issuers who have worked with a particular market maker. Market making requires specialized technology solutions, algorithm development, and effective risk management practices. It’s also important to consider the quality of the market maker’s technology and algorithms. These should be able to handle challenges such as stale data, trade execution lag, and unexpected events such as API downtime and errors. The best market makers in the crypto industry generally have proprietary software and algorithms, a dedicated development team, and professional traders preferably with years of experience. This can help ensure that the market maker you choose has the necessary skills and resources to provide a high-quality service that meets your specific needs, and can handle the challenges of the market.
2. Business Model: This may be one of the most important factors to consider. When selecting a market maker, it is important to consider the incentives they are given. Some market makers may be paid with options on the native token; however, this can create a conflict of interest. The market maker may be motivated to pump the token and sell it immediately for a profit, rather than providing a good liquidity service. It’s crucial to ensure that the market maker you choose is incentivized to provide a high-quality liquidity service that benefits the token and its holders in the long term. Look for a market maker that is transparent about their fee structure and has a track record of providing consistent and reliable liquidity in the market. We will delve further into this topic in the blog.
3. Regulation: This one is pretty straightforward. Ensure that the market maker is regulated and compliant with local laws and regulations. If it looks too good to be true it probably is.
4. Fees: Compare the fees charged by different market makers to ensure you are getting a good deal.
5. Transparency: it’s essential to ensure that market maker is accountable and transparent in its fee structure, communication, and reporting. A reputable market maker should be able to clearly explain their fees and any other charges and provide detailed reports on their activities. Clear and open communication is also important as it allows for smooth and efficient coordination between the market maker and the token issuer.
6. Exchanges: Another important factor to consider when choosing a market maker is the exchanges on which they operate. The more exchanges a market maker is able to access, the better. This is because it increases the liquidity of your token and makes it more likely that your token will be traded at fair prices. Moreover, having a market maker that operates on multiple exchanges can help mitigate the risk of price manipulation and increase the visibility of your token in the marketplace. So, when evaluating market makers, make sure to check which exchanges they are able to access and how they are able to provide liquidity on those exchanges. This will give you a better understanding of the market maker’s capabilities and can help you make a more informed decision when choosing the right market maker for your token issuance needs.
7. Experience: Another key factor to consider when selecting a market maker. Look for market makers that have been in the business for a while and have a proven track record of executing trades successfully. This can indicate their knowledge, expertise in the market, and ability to provide a reliable service. Additionally, market makers with a long-standing presence in the industry may have a better understanding of the market conditions, which can help them provide better liquidity and execute trades more efficiently.
8. Providing the service in different economic / market environments: When selecting a market maker, it’s crucial to consider their ability to consistently provide a reliable service, even in volatile market conditions. This is especially important for token issuers as the market can be highly unpredictable. Professional market makers can provide liquidity and are willing to support trading in different market conditions, whether liquid or illiquid tokens. They are also flexible and able to adapt to the rapidly changing market sentiment. Choosing a market maker with a proven track record of reliability and consistency in volatile market conditions can help ensure the success of your token issuance.

We would also advise you to look out for practices like:

1. Wash trading a.k.a. fake volume: A crypto market participant who promises to provide a specific volume level is not necessarily “a bad guy”. It may have good intentions but may lack experience or have misaligned incentives. Similarly, those who guarantee a certain price increase for your token leave themselves open to criticism and skepticism. It is advisable to exercise caution when dealing with these groups or individuals, who may not truly embody the responsibilities and principles of a professional market maker. Therefore, it would be appropriate to refrain from labeling them as such.
2. Pump & Dump: Some market makers generate profits by artificially inflating the price of a token and then selling it, a tactic commonly referred to as the “pump-and-dump” practice. These companies are not really market makers and do not care about the long-term price of a token nor do they care about liquidity. Strictly avoid.
3. Ramping: A deceptive practice where a market participant creates the illusion of a large, well-established buyer, by effortlessly buying large amounts of tokens, which they actually own themselves. This behavior can be misleading, causing other traders to believe that there is significant demand for the token and feel compelled to follow suit, only to end up being the losers. A crypto market maker may employ this tactic by creating a phantom buyer who conducts large trades at regular intervals, causing the market to become accustomed to this activity and driving up prices. However, once the market making activities have ended, the phantom buyer disappears, resulting in a significant drop in the value of the token. Market participants should be aware of this unethical practice and exercise caution when evaluating market activit
4. Cornering: Most commonly seen in commodity markets, where the supply is limited and it is difficult to maintain short positions over an extended period. The same applies to smaller tokens that follow a similar supply pattern. A fake market maker may not be able to profit from cornering if they are the only liquidity provider, but they can use this tactic when there are multiple market makers for the same token. The goal is to acquire a large portion of the available tokens and force other market makers to increase prices to maintain their spread, giving the fake market maker an advantage. Market participants should be aware of this unethical practice and carefully evaluate market activity when investing in tokens.

Unethical and illegal manipulation of prices and trading volume can have disastrous long-term effects on the reputation and relationships with investors, crypto exchanges, and professional investors. Expectations are likely to be failed, leading to a loss of trust from early investors and possible delisting from exchanges. The reputation of ICO founders can also be damaged even if they were unaware of the manipulation taking place, due to the detection of such practices by those with traditional financial and business backgrounds.

Whether motivated by the desire to earn a profit or to support the success of a particular project, all true market makers are ultimately working towards the goal of having liquid tokens, making them a crucial component of any thriving token ecosystem.

Example of market makers

Wintermute

Wintermute is one of the biggest algorithmic liquidity providers in centralized and decentralized finance, aiming to solve the lack of liquidity and inefficiency in the crypto market. Wintermute offers services such as market making, over-the-counter (OTC) trading, NODE ( a digital platform which offers institutional investors, blockchain native and high net worth individuals access to OTC crypto trading) and venture capital for investing. With over 50 exchanges and trading platforms partnerships, Wintermute is also a gateway of support for blockchain projects and financial institutions entering crypto, managing hundreds of millions in assets and trading over $5 billion daily. As a reputable player in the market, Wintermute has a stringent screening process for selecting token issuers to ensure the quality and credibility of its offerings. The company thoroughly assesses potential issuers based on a variety of factors such as their business model, team, technology, and regulatory compliance, among others. Wintermute’s aim is to provide its customers with a curated portfolio of high-quality tokens that are backed by strong projects and teams, thereby ensuring the security and reliability of their investments.

Kairon Labs

Kairon Labs was founded in Belgium near the end of 2018 as a dedicated algorithmic trading service. It was established during the ICO boom of 2017 and is considered one of the largest players in the crypto market making space. The company provides market making services for over 60 different token projects on approximately 32 different exchanges. Kairon Labs has a hybrid business model that combines a monthly fixed fee with a profit split.

GSR

GSR is a renowned market maker, ecosystem partner, and multi-stage investor in the cryptocurrency industry. With 9 years of deep market expertise, the company provides a range of liquidity solutions to meet the unique needs of its clients, including token issuers, institutional investors, miners, and leading cryptocurrency exchanges. The company’s global team of over 300 professionals, combined with its advanced trading technology, offers access to digital assets, connected to 60 trading venues worldwide. GSR’s culture is centered around innovation and problem-solving, and the company is known for its tenacity and imaginative approach to complex challenges. The company is committed to building long-term relationships with its clients, offering services and expertise tailored to their specific needs.

Criticism of »big companies« business model

Although companies like Wintermute, Kairon Labs, and GSR are renowned big players in the market, they are still cons when doing business with them. Not having to deal with market making at all may sound interesting however it comes with a big cost.

Big companies like Wintermute operate on a unique business model where token issuers loan their tokens to the company, in exchange for low-interest uncollateralized loans. After the transfer of assets, the market maker performs market-making activities on its own accounts, presenting some level of counterparty risk (going to discuss this later down the line) to its clients. To mitigate this risk, the market maker usually acquires call options for the tokens, giving it the non-binding option to purchase the tokens at a predetermined price in the near future. These services are typically provided free of charge, as the company generates its revenue by selling the tokens which they bought at a predetermined price (if token prices raise 2x, 3x, etc. market makers get majority of the profits). It is also worth mentioning market-making profits go solely to Wintermute.

Companies like Wintermute, GSR and Kairon Labs provide a complete solution for token issuers, taking care of all aspects of market making and providing access to a curated portfolio of high-quality tokens. However, in exchange for this service, token issuers might give up a certain percentage of ownership of their tokens.

At Orcabay, we believe that the profit-sharing model, where token issuers loan their tokens to the company in exchange for low-interest loans, is not the right approach for market making. The transfer of ownership, where token issuers must give up a portion of their tokens as payment for the services, is seen as potentially detrimental to the success of the token issuer’s project. The company’s profits from market making activities also go solely to market makers such as Wintermute and Kairon Labs, which could be seen as not aligning the company’s motivation with the success of the token issuer’s project. Instead, Orcabay believes that tokens should remain in the hands of the token issuers and that profits should be shared among the project team, hodlers, and those who believe in the project, rather than being retained by the market maker.

But why would I choose Orcabay?

Remember the section above where we talked about counterparty risk? Counterparty risk refers to the risk of one party not fulfilling their obligations in a financial transaction, leading to losses for the other party. It is common in transactions where trust is a factor, such as in credit, investment, and trading deals. One of the most known cases of counterparty risk is FTX’s collapse which will go into the history books.

Many market makers use funds from clients to increase market liquidity, which can take the form of a loan to the market maker or managed accounts on exchanges. The market maker’s access to the funds and deployment of capital may vary, and in some cases, they may trade on behalf of clients using third-party accounts, which meant that when FTX went bust so did their tokens.

At Orcabay we are aware of counterparty risk and hence, you’ll always have full access to your exchange account and full control over the assets. Orcabay will never ask you to transfer your assets to us. All we will need from you is trading API access and we do not require withdrawal permissions.

We operate with a fixed fee structure that is customized to meet the needs and goals of each client. The main priority of Orcabay is ensuring the stability of the token’s price, which is crucial for the success of the project. We also don’t require ownership of assets, allowing token issuers to maintain control and ensure stability. By avoiding call options and focusing on price stability, Orcabay contributes to the success of its client’s projects as we are not just looking for quick profit by selling the tokens. 

Conclusion

If you are an ICO with genuine intentions, a strong product, and a focus on long-term success, working with crypto market makers can be advantageous. They can help increase liquidity, attract informed investors, and secure a higher-tier exchange listing. However, it’s essential to thoroughly vet your market maker by examining their backgrounds, experiences, locations and also be cautious of any market maker promising guaranteed trading volumes and prices. And avoid requesting metrics that are outside of their control, as it may incentivize unethical practices that can harm your project.

At Orcabay, we bring our expertise in market making to the table to provide you with a reliable and personalized experience. You have control over the process, and we are always open to your requests and needs. Reach out to us through email, Telegram, LinkedIn or schedule a call by clicking the button provided. Let us put our experience in market making to work for you.