What is a market maker and how do they differ in crypto and traditional financial markets? At the European Blockchain Conference in Barcelona, Cointelegraph discussed the issue with key market makers in the cryptocurrency industry in one of the first panels at the conference.
Cointelegraph reporter Joseph Hall drew the analogy that crypto market makers are a lot like cool bartenders at a very high-tech, unabashedly nerdy cocktail. Their job is to keep the drinks flowing, that is, to provide liquidity and ensure that everyone has a good time while maintaining order in the market.
Cointelegraph @JoeNakamoto presenting the “Why Market Maker is Key to Crypto Market Recovery” panel at the European Blockchain Convention where he so eloquently described what a market maker is pic.twitter.com/3EoJnNXLyU
— Cointelegraph (@Cointelegraph) February 16, 2023
That means they secretly hope that no one gets too drunk, makes a fool of himself, and ruins everything. Ultimately, the market makers are there to manage risk and make sure the gorillas kick out people like Sam Bankman-Fried and other bad actors.
In essence, crypto market makers are the best party planners, but instead of balloons, cakes, and a Spotify playlist, they use leveraged algorithms and order books. The head of trading strategy for a large crypto market maker, Stef Wynendaele, suggested that “it’s a great definition, but it carries too much power for what a market maker does.”
“We are actually the dance floor. We are actually the music. We’re there to support, you know, the party. We are there at all times. We’re there at 9 pm and we’re there at 5 am in the morning.”
Wynendaele suggested that market makers are the foundation of a thriving crypto-economy and that they are not, in fact, “the bartender who controls who drinks or not.”
For Patrick Heusser, commercial director at Crypto Finance, the waiter analogy works well. However, “someone has to do the logistics,” he explained. “Someone has to make sure there’s enough beer in the back and stuff for the drinks, and the infrastructure of the market is very important for market makers.”
“Otherwise you just have fancy blinking price displays, and if you can’t settle or if you don’t feel comfortable settling certain trades with certain counterparties, the market isn’t as attractive as it should be.”
So if the crypto economy were a party, the market makers could be the dance floor, music, and logistics.
Guilhem Chaumount, CEO of France-based market makers Flowdesk, explained that we should also keep in mind that in the crypto space, “there isn’t one bar, it’s 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 and Bitcoin (BTC) and any crypto,” which underscores the distinction between traditional financial market making and crypto market making.
For traditional finance, Chaumont explained, it’s mostly “proprietary business companies operating off their balance sheet, trying to make profits and losses.” Whereas in crypto, there is a more technological approach because assets are infinitely more difficult to value.
After an extensive career in traditional finance, John Murillo, director of transactions at B2Broker, explained that the way brokers choose market makers remains the same: “You just choose which party to go to because everyone has a party “.
“Our approach to cryptocurrency creators is no different than it was in my old days, where you evaluate counterparties, where you pick and choose who you want to connect and integrate. I think that’s the key to creating a reliable solution.”
In all, Chaumant summed up that market makers have a “great responsibility.” He shared that while Bitcoin (BTC) may have recently recovered $25,000, the industry will not recover without the help and assistance of market makers.
