What is a market maker and how does it differ in the cryptocurrency and traditional financial markets? At the European Blockchain Conference in Barcelona, Cryptooshala discussed this topic with key market makers in the crypto industry in one of the first conference panels.
Cryptooshala reporter Joseph Hall drew an analogy that cryptocurrency market makers are very much like hard-boiled bartenders at a very high-tech and shamelessly nerdy cocktail party. Their job is to keep the drinks flowing, i.e. provide liquidity and make sure everyone is having a good time keeping order in the market.
Cryptooshala @JoNakamoto hosting a panel on “Why Market Creation is the Key to Reviving the Cryptocurrency Market” at the European Blockchain Conference, where he described what a market maker is so eloquently. pic.twitter.com/3EoJnNXLyU
— Cryptooshala (@Cryptooshala) February 16, 2023
This means that they secretly hope that no one gets drunk, makes a fool of themselves and ruins everything. Ultimately, market makers must manage risk and ensure that bouncers kick the likes of Sam Bankman-Freed and other bad players.
Basically, crypto market makers are the best party planners, but instead of balloons, cakes, and loud Spotify playlists, they use leverage algorithms and order books. The head of commercial strategy for a major market maker, Steph Vinendaele, suggested that “it’s a great definition, but it implies too much power over what the market maker does.”
“Actually, we are the dance floor. We are really music. We’re here to support, you know, the party. We are always there. We are there at 9pm and we are there at 5am.”
Vinendaele suggested that market makers are the backbone of a thriving crypto economy and that they are not really “bartenders who control who drinks and who doesn’t.”
For Patrik Heusser, CCO of Crypto Finance, the bartender analogy works well. However, “someone has to handle the logistics,” he explained. “Someone has to make sure there are enough beers and drinks in the trunk, and market infrastructure is very important for market makers.”
“Otherwise, you’re just going to have these weird flashing price screens, and if you can’t settle or are uncomfortable settling certain trades with certain counterparties, the market isn’t as attractive as it should be.”
So if cryptoeconomics was a party, market makers could be the dance floor, music, and logistics.
Guilleme Chaumont, CEO of France-based market maker Flowdesk, explained that we also need to remember that in the crypto space “there are not one bar, but dozens of bars. Some of them are centralized or decentralized. They are open 24/7, 365. You have so many cocktails, 20,000 cocktails available. You don’t know what’s in them.”
On top of that, “prices are not in US dollars or euros, but in bitcoin (BTC) and any other cryptocurrency,” highlighting the difference between building a traditional financial market and building a cryptocurrency market.
For traditional finance, Chaumont explained, it’s basically “private trading firms operating off their balance sheet, trying to make a profit or a loss.” Whereas in crypto there is a more technological approach because the assets are much more difficult to value.
John Murillo, chief dealing officer at B2Broker, after an extensive career in traditional finance, explained that the way brokers select market makers remains the same: “You just choose which party to go to, because everyone has a party.”
“Our approach to cryptocurrency producers is no different from what it was in my old days, when you evaluate counterparties, when you choose who you want to connect and integrate. I think this is the key to building a robust solution.”
Overall, Schoman summed up, market makers have a “huge responsibility.” He shared that while Bitcoin (BTC) may have bounced back $25,000 recently, the industry will not recover without the help and help of market makers.
Credit : cointelegraph.com
