Market makers quote continuously on both sides of an order book so that someone wanting to trade can do so without waiting for a matching counterparty. That is the function. The economics and the contracts are where it becomes interesting, and where projects most often make expensive decisions without understanding them.<\/p>\n
Most teams meet a market maker for the first time around a listing, at which point they are told \u2014 correctly \u2014 that a listed asset with no liquidity is worse than no listing. The decision then gets made quickly, under time pressure, by people with no background in market microstructure, against a contract whose incentive structure is not obvious from reading it.<\/p>\n
That combination is why this is worth understanding in advance rather than during a launch week. The arrangement typically runs for a year or more and shapes how the asset trades for far longer.<\/p>\n
A market maker posts a bid and an ask. If both are hit, the spread is earned. The risk is inventory: markets move, and a maker who accumulates a position because everyone is selling holds an asset that is falling.<\/p>\n
Spread compensates for that risk. Wider spreads in volatile or thin markets are not gouging \u2014 they are the price of someone standing ready to take the other side of a trade in conditions where nobody else will.<\/p>\n
Order books deepen when several makers compete, which narrows spreads. In thin markets a single maker may be most of the visible liquidity, and their withdrawal is indistinguishable from the market disappearing.<\/p>\n
How a project pays a market maker determines what the market maker is incentivised to do, and the two common structures differ substantially.<\/p>\n
The project pays a monthly fee. The maker commits to obligations: maximum spread, minimum depth at defined distances from mid, minimum uptime.<\/p>\n
Incentives are relatively clean. The maker is paid to provide a service and is measurable against stated obligations. It costs real money and it is the structure most aligned with a project wanting a functioning market.<\/p>\n
The project lends tokens to the maker, who uses them as inventory. The maker receives a call option to buy those tokens at a set price at the end of the term.<\/p>\n
Cash cost to the project is low, which is why early-stage teams prefer it. The incentive structure is materially different: the maker’s return depends heavily on the option, and an option gains value with volatility and with price appreciation. A structure meant to produce orderly markets can therefore pay best when markets are not orderly.<\/p>\n
This is not an accusation about anyone. It is a description of what the instrument rewards, and it is worth understanding before signing one. The mitigations are the obvious ones: obligations specified and monitored, strike and term set carefully, and the loan sized so that the maker’s position cannot dominate the book.<\/p>\n
Depth matters more than volume. Volume can be produced by trading with yourself; depth at a meaningful distance from mid is harder to fake and describes what would actually happen if someone sold.<\/p>\n
Watch behaviour under stress. Liquidity that disappears the moment it is needed was never liquidity \u2014 it was quotes. The useful observation is what the book looks like during a sharp move, not on a quiet afternoon.<\/p>\n
And be sceptical of consistent, evenly-distributed volume across many venues with thin books. That pattern is more often an artefact of wash activity than evidence of a healthy market.<\/p>\n
None of this is advice about trading or about any venue. It is the structure that determines whether a market functions when it is tested.<\/p>\n","protected":false},"excerpt":{"rendered":"
How crypto market makers work: spreads, inventory risk, retainer versus loan-and-option deals, and why the contract structure changes incentives.<\/p>\n","protected":false},"author":10,"featured_media":152,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[83,84,82,76],"class_list":["post-113","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-trends","tag-liquidity","tag-listings","tag-market-making","tag-market-structure"],"_links":{"self":[{"href":"https:\/\/tokenpr.net\/es\/wp-json\/wp\/v2\/posts\/113","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tokenpr.net\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tokenpr.net\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tokenpr.net\/es\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/tokenpr.net\/es\/wp-json\/wp\/v2\/comments?post=113"}],"version-history":[{"count":1,"href":"https:\/\/tokenpr.net\/es\/wp-json\/wp\/v2\/posts\/113\/revisions"}],"predecessor-version":[{"id":119,"href":"https:\/\/tokenpr.net\/es\/wp-json\/wp\/v2\/posts\/113\/revisions\/119"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tokenpr.net\/es\/wp-json\/wp\/v2\/media\/152"}],"wp:attachment":[{"href":"https:\/\/tokenpr.net\/es\/wp-json\/wp\/v2\/media?parent=113"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tokenpr.net\/es\/wp-json\/wp\/v2\/categories?post=113"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tokenpr.net\/es\/wp-json\/wp\/v2\/tags?post=113"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}