“The market’s demand for market makers is very strong because it allows them to reduce price volatility by using fair price discovery, thereby establishing an efficient financial market.”
What is cryptocurrency market making?
Compared with traditional market makers, cryptocurrency market making is a new thing. This article aims to better understand the behavior of cryptocurrency market makers. First, let’s explore what market making is by exploring a basic understanding of the market making process.
In short, market making is a trading activity where traders provide liquidity to both parties (buyer and seller) in the financial market. This market is established by quoting when buying and selling assets.
Demand from market makers is very strong because it enables them to reduce price volatility by using fair price discovery, thereby establishing an efficient financial market. Considering the situation of any given asset, the difference between the selected best bid and the selected best ask is the so-called bid spread. If the market liquidity is low, the spread will widen and vice versa. Liquidity markets have very small spreads, so traders enter and exit trading positions at a lower cost. The spread is an important part of the overall plan, because it affects the trading volume. In short, market makers will pave the way for a tighter market.
How to do it?
By ensuring tighter bid-ask spreads.
Demand for cryptocurrency market makers
As mentioned earlier, efficient financial markets are time-critical. Traders and investors want to trade immediately, because under normal circumstances, finding a suitable buyer or seller of the same asset for both parties, and the price expected by both parties is the same, which can be a difficult task. This tends to increase the waiting time interval. The longer the waiting time, the higher the transaction cost, the lower the liquidity level, and the lower the transaction volume. In short, this is a losing situation.
Even if there is no direct counterparty to execute the order with the market maker, they will still complete your order. Although market makers may be at risk considering price changes, there are several ways to hedge these risks. The market maker charges a nominal fee to complete the order. Due to the very high transaction volume, the spread of each asset is very high and covered well, eventually offsetting the risk.
They also use algorithmic trading tools and automated market making strategies that work on real-time data.
How are cryptocurrency market makers different
Earlier market makers were synonymous with banks and brokers. But now, market makers in the encryption field have conceptually expanded into the digital asset industry. The new era of cryptocurrency market makers differs from traditional market makers in several ways:
- A very active entity, working around the clock (because the cryptocurrency market is always open), and has a powerful monitoring function, and almost does not retain any transaction details.
- Cryptocurrency market makers are used to dealing with low liquidity markets
- Use blockchain tracking systems to gain in-depth market insights
- The number of crypto exchanges has increased compared to stocks that are only traded with a few reliable exchanges such as Nasdaq.
- Market makers do not decide prices, but provide orders, reduce spreads, help negotiations, formulate trading strategies and provide necessary feedback. Market makers are experts who understand the working mechanism of order books, technical analysis and the establishment of customized trading software strategies.
Now let’s take a look at the top 5 market makers in the cryptocurrency field:
GSR Markets is fundamentally an algorithmic digital trading company belonging to Hong Kong. It uses its own software to provide order execution solutions for several digital asset classes, thereby providing liquidity. The company has deployed multiple transaction models, integrated with more than 30 liquidity pools, and its transaction fees are relatively low in the market.
- First-class leadership and a strong team of technical and financial practitioners from world-class financial institutions.
- Designed an intuitive risk management strategy, designed for those who are difficult to manage.
- Its proprietary trading technology can be modified according to trading needs. Its sales and aggregation strategy will be adjusted according to real-time liquidity and volatility, so that investors can truly get the best price.
It is safe to say that Kairon Labs is arguably the largest market maker in this field. Located in the Netherlands and Belgium, they use their own proprietary software to provide market makers for the tokens they use effectively. Kairon has become one of the most professional market makers in the encryption field. They are known for custom enterprise-level algorithms, and they understand the value of building algorithms for each project. Kairon Labs is used by some of the best projects as a market maker.
They have extensive experience in building enterprise architectures and designing trading algorithms. Their expertise and expertise are utility tokens and stablecoins. In order to expand their expertise, they use their own software to operate. Their proprietary solutions tailored to customers are very helpful in reducing the impact of price volatility. Kairon Labs operates completely transparently and provides liquidity on many exchanges. They are currently connected to the API of more than 120 exchanges.
Compared with competitors, it has huge advantages in terms of lower fees, profit distribution and algorithmic trading services of digital assets, which makes them extremely attractive for any potential projects that require market making. However, they are extremely selective and attach great importance to their brand reputation.
The team consists of some legendary cryptocurrency traders who helped many well-known projects during the 2017 cryptocurrency bull market.
- In-depth analysis of the advantages of order books and projects.
- They work in a very pragmatic and precise way, from testing strategies to obsessive analysis of them, and then deploy market-making strategies tailored to each project that best suit their needs.
- Maintain 24/7 alarm, you can change the trading strategy according to time requirements.
- Reports about transaction volume, profit and loss, and direct communication with the project via WeChat, Telegram and Whatsapp are published every two weeks.
- Schedule a conference call every two weeks to discuss future strategies.
Alpha Theta is developing very quickly, they focus on the integration between algorithmic trading and robots. Alpha Theta is located in Toronto and its strategy is tailored to the needs of the project. The best part about Alpha Theta is that they are passionate about participating in even small projects, building their reputation, and growing.
- Alpha Theta has some of the most talented teams of engineers who have generated powerful algorithms specifically designed for the crypto market.
- Alpha Theta is very particular about following the AML/KYC strategy to maintain its operational compliance.
- They have huge data transparency, allowing investors to keep abreast of market operations.
- One person can use n robots to execute different strategies on multiple exchanges
- Dedicated trading desk runs 24 hours a day
Almeda Research was first established by Sam Bankman-Fried and Gary Wang in 2017 and currently manages more than $100 million in assets. They are well-known for quantitative trading, and have made considerable profits from it. However, they have recently set foot in other areas, such as creating their own OTC trading desk and new exchange FTX.
- Based on their solid research techniques, market-neutral algorithms and trading advantages of market-making partnerships.
- A complete trading system can ensure a tight OTC spread.
- Decades of experienced team members from giants such as FB and Google.
- Comprehensive global operation, can be traded on multiple exchanges.
Bluesky is a quantitative investment management company and has also been involved in market making with great success. It helps HNI, institutional investors, and large ticket offices achieve their investment goals by investing money in global financial markets. The company currently manages a quantitative plan at the global macro level.
- The company has strict and proprietary quantitative research methods and has invested heavily in disruptive technologies.
- Constant innovation is the mantra here because the company is always looking for tools and data sets and new sources of Alpha.
- A tailor-made risk management framework ensures timely monitoring of investment-related risks.
- Provide 24/7 liquidity on its corresponding cryptocurrency exchange with API
Why do you need top market makers?
Liquidity is regarded as an important factor to increase the trading volume, which can help the project to be listed on large exchanges and more exchanges. Market makers can effectively meet this demand because they can help create a market for the token, route items in a way that helps them find the best price, and achieve price stability for future transactions, thereby maintaining more Narrow spreads, allowing investors to place healthy orders.
Market makers in the encryption market have successfully filled this gap, especially in the era of rapid development of the encryption market. This article only hopes that this list will provide a clear view of project selection, especially for investors who can find the best provider to actually work with them.