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With their expertise and experience, market makers are the backbone of the market. They buy and sell assets at any time, offering spreads between bid and ask prices in a market.
They are often referred to as “liquidity providers” simply because their primary purpose is to maintain fluidity in the markets, ensuring 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 lifecycle of trades, they are still there, operating behind the scenes, using complex algorithms and arbitrage strategies to keep the market running smoothly.
Market makers are not just profit seekers; they shape the market. They enable markets to be liquid and operate smoothly, by improving market liquidity and depth and creating demand and supply.
In traditional markets, Citadel Securities, Virtu Financial and Jump Trading are among the most recognized market makers in the world, although Morgan Stanley is a market maker on NASDAQ.
In the cryptocurrency space, market makers also seek to ensure sufficient liquidity in the market they operate in to ensure sufficient trading volume for smooth transactions. With them, there would likely be more liquidity. They play a vital role in the cryptocurrency market, often causing significant fluctuations in tokens.
Market makers can be classified into two categories: project advisors and traditional market makers. Although both types of market makers aim to ensure market liquidity, they operate differently.
Market makers acting as project advisors help launch projects. They contribute to success in critical areas such as robust token economics and building token generation events (TGEs), successful token listings, and fundraising.
In contrast, traditional market makers do not participate in low-value projects and handle a range of tasks such as supporting market liquidity, reducing bid-ask spreads, and promoting efficient trading.
Market sentiment and trends determine the strategies that market makers will adopt. In an uptrend or bull market, they create fear of missing out. In a bear market, they create fear among traders to force traders or holders to dump their tokens.
The good and the bad
As with everything in the cryptocurrency market, there are market makers who only take tokens from startups and sell them, but others like Gotbit, for example, bring considerable value to the project they work with.
“Leading projects have succeeded because of their teams and technology, because they solve real-world problems and have the support of large market makers,” said Alex Andryunin, CEO and Founder of Gotbit.
Large market makers, he added, “help in all areas of a project, including marketing, tokenomics design, business development, and token generation events, among other very critical areas,” Andryunin added.
Gotbit CEO said that ethical and well-intentioned market makers “help ensure the health of the cryptocurrency 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 succeed for themselves and their communities. Through greater transparency, market makers help all market participants, especially token issuers, make more informed decisions.”
Market makers should not directly influence the price of tokens, because if they do, cryptocurrency 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’m not going to name or shame any of my competitors, but some are deliberately influencing the price for their own benefit, which is considered market manipulation, and it’s illegal and punishable,” he said.
Andryunin said that large market makers should refrain from cooperating with each other. “They have no right to do this. It is considered fraud, but also, and ultimately, it is not financially profitable.”
Alex Andryunin also clarified that wash trading should not be seen as a form of market making. “Let me explain: wash trading is a manipulation technique where unethical traders try to drive up the price of a token by artificially increasing its trading volume. What wash traders do, and market makers do not, is send crypto between multiple wallet addresses that they control to give the false impression of massive trading activity and demand.”
That said, some companies pose as market makers but are not, because they buy, copy or create software that is essentially wash trading bots, Andryunin warns. “As a rule, hiring such market makers is a recipe for the collapse of any project.”
He stressed that projects need to ensure their market makers are performance-driven. “An ethical and success-driven market maker wins when their clients win, outpacing others who operate on a desire model, and getting tokens for themselves to manage.”
Building on success stories
Gotbit has helped over 500 projects succeed in the last six months, including Hamster Kombat Hamsters, which has over 3.00 million tokens in three to four months, and BONK, a memecoin that in a very short time ranks 56th 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 had so much success with our partners is that we take all of our expertise and create playbooks with the success stories of the projects we work on and customize them for each of our various clients,” Alex said.
While the success of any project depends on its team, community building, transparency, and reinvestment in cryptocurrency exchange listings and top-tier marketing, market makers are essential. It is even more important to make sure you have the right market maker, as they are the secret weapon of every blockchain project.
