What is a market maker, and how do they differ in the crypto and traditional finance markets? At the European Blockchain Conference in Barcelona, Cointelegraph discussed the topic with key market makers in the crypto industry during one of the conference\u2019s first panels. <\/p>\n
Cointelegraph reporter Joseph Hall drew up the analogy that crypto market makers are much like cool bartenders at a very high-tech and unashamedly nerdy cocktail party. Their job is to keep the drinks flowing \u2014 provide liquidity and ensure everyone\u2019s having a good time \u2014 while maintaining order in the market. <\/p>\n
\nCointelegraph’s @JoeNakamoto<\/a> hosting the “Why Market Making is Key for a Crypto Market Recovery” panel at the European Blockchain Convention where he so eloquently described what a market maker is pic.twitter.com\/3EoJnNXLyU<\/a><\/p>\n
\u2014 Cointelegraph (@Cointelegraph) February 16, 2023<\/a><\/p><\/blockquote>\n
That means they secretly hope that no one gets too drunk, makes a fool of themselves and ruins everything. Ultimately, market makers are there to manage risk and make sure the bouncers kick out the likes of Sam Bankman-Fried<\/a> and other bad actors.\u00a0<\/p>\n
In essence, crypto market makers are the ultimate party planners, but instead of balloons, cake and a banging Spotify playlist, they use leverage algorithms and order books. The head of commercial strategy at a large crypto market maker, Stef Wynendaele, suggested \u201cIt\u2019s a great definition, but it implies too much power to what a market maker does.\u201d<\/p>\n
\u201cWe\u2019re actually the dance floor. We\u2019re actually the music. We\u2019re there to support, you know, the party. We\u2019re there at all times. We\u2019re there at 9 pm and we\u2019re there at 5 am in the morning.\u201d<\/p><\/blockquote>\n
Wynendaele suggested that market makers are the foundations of a thriving crypto economy and that they\u2019re not, in fact \u201cthe bartender who controls who drinks or not.\u201d <\/p>\n
Stef Wynendaele of Keyrock talks during a panel discussion at the European Blockchain Conference.\u00a0<\/em>Source: Jose Val Bal<\/em><\/figcaption><\/figure>\n The bartender analogy works well for Patrick Heusser, the chief commercial officer at Crypto Finance. However, \u201cSomeone has to do the logistics,\u201d he explained. \u201cSomeone has to make sure there is enough beer in the back and stuff for the drinks \u2014 and market infrastructure is super important for market makers.\u201d <\/p>\n
\u201cOtherwise, you just have fancy flashing price screens, and if you can\u2019t settle or if you\u2019re not comfortable with settling certain trades with certain counterparties, the marketplace is not as attractive as it should be.\u201d<\/p><\/blockquote>\n
So, if the crypto economy was a party, the market makers could be the dance floor, the music and the logistics. <\/p>\n
Guilhem Chaumount, CEO of French market maker, Flowdesk, explained that we must remember that in the crypto space, \u201cit\u2019s there\u2019s not one bar; it\u2019s 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\u2019t know what\u2019s in them.\u201d<\/p>\n
Chaumont listens in during the panel discussion.\u00a0<\/em>Source: Jose Val Bal<\/em><\/figcaption><\/figure>\n On top of that, \u201cThe prices are not in U.S. dollars or euro and Bitcoin (BTC<\/a>) and whatever crypto,\u201d underlining the distinction between traditional finance (TradFi) market making and crypto market making. <\/p>\n
For traditional finance, Chaumont explained, it\u2019s mostly \u201cproprietary trading firms operating off their balance sheet, trying to generate profit and loss.\u201d There is a more technological approach in crypto because the assets are infinitely harder to price.<\/p>\n
Murillo spent years in Tradfi before working in crypto.\u00a0<\/em>Source: Jose Val Bal<\/em><\/figcaption><\/figure>\n Following an extensive career in traditional finance, John Murillo, a chief dealing officer at B2Broker, explained how brokers pick market makers remains the same: \u201cYou just choose which party to attend because everyone has a party.\u201c<\/p>\n
\u201cOur approach on crypto makers is no different than it was in my old days, where you assess counterparties, where you pick and choose who you want to connect and integrate. I think that\u2019s the key to creating a reliable solution.\u201c<\/p><\/blockquote>\n
In all, Chaumant summed up that market makers carry a \u201chuge responsibility.\u201c He shared that while Bitcoin\u00a0might have recently reclaimed $25,000<\/a>, the industry will not recover without the aid and assistance of market makers.\u00a0<\/p>\n<\/div>\n
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