Market making is a fundamental function in financial markets, serving as the backbone for liquidity and stability in asset pricing. Nowhere is this more critical than in the rapidly evolving crypto markets. Market makers facilitate transactions by continuously buying and selling tokens, allowing traders to execute orders without significant delays or price impacts, effectively bridging the gap between supply and demand. This constant flow of transactions helps prevent extreme price volatility, which is especially crucial in the crypto space where market conditions can change abruptly. By providing liquidity, market makers enable more predictable and smoother price movements, making the market more attractive and accessible to both retail and institutional investors.
In the cryptocurrency ecosystem, the role of market makers has evolved alongside technology. Unlike traditional markets dominated by large financial entities, crypto market making is accessible to a broader range of participants thanks to open API access provided by exchanges. This technological democratization allows even smaller firms to contribute to liquidity management. However, operating effectively as a crypto market maker requires financial expertise and advanced technological capabilities. Market makers must manage complex algorithms and maintain robust technical infrastructures to handle the high-speed, around-the-clock nature of global crypto markets.
Decentralized exchanges (DEXs), though equipped with Automated Market Makers (AMMs), still greatly benefit from the active participation of traditional market makers. While AMMs automate liquidity provision and facilitate decentralized trading directly on blockchain networks, they cannot fully replace the nuanced strategies of traditional market makers. These professionals are essential for ensuring price alignment with centralized exchanges (CEXs), thereby maintaining market stability and coherence across trading platforms. Market makers also optimize liquidity concentration by strategically placing orders to mitigate slippage and improve transaction efficiency, which is particularly vital for managing larger orders that could otherwise disproportionately impact the market.
Moreover, market makers are adept at capitalizing on arbitrage opportunities arising from price discrepancies between different exchanges, fostering price consistency across the market. This ability not only aids in fair pricing but also enhances overall market efficiency. Additionally, a market maker active on a centralized exchange (CEX) for a particular token can extend their operations to include the token’s liquidity on a DEX within their consolidated order book. This integration allows for a more seamless flow of capital between different trading venues, optimizing the liquidity and accessibility of assets across the crypto ecosystem. Thus, the role of market makers in DEXs is not only about maintaining liquidity but also about enhancing the interconnectedness and operational efficiency of the entire market.
As we delve into the landscape of crypto market makers, it’s crucial to understand the distinction between custodial and non-custodial market makers.
1- Custodial Market Makers:
These entities typically take possession of a significant portion of a token’s supply when they provide market-making services. This control can have profound implications, both positive and negative. Holding a large inventory enables them to handle large orders more effectively and offer deeper liquidity, potentially stabilizing the token’s price during volatile periods. Moreover, for some projects—particularly those operating under stringent regulatory environments—employing a custodial market maker might be necessary to meet compliance requirements that dictate the handling and storage of digital assets. However, the incentives of custodial market makers may not always perfectly align with a token project’s goals. Their profit motives can sometimes diverge from the interests of the project, especially if they prioritize short-term trading gains over long-term token value.
2- Non-Custodial Market Makers:
Non-custodial market makers do not take possession of the tokens they trade. This arrangement tends to align better with the interests of token projects, as it leaves them firmly in control of their assets. Projects grant these market makers limited access to their liquidity via API keys, ensuring high security by disabling withdrawal rights. If a project becomes dissatisfied with the performance or practices of a non-custodial market maker, it can easily revoke access and select a different partner. This flexibility and security make non-custodial market makers a preferable choice for many projects, especially those prioritizing autonomy over their token supply and seeking to avoid the risks associated with entrusting substantial amounts of assets to a third party.
A proficient market maker must excel in managing liquidity across a diverse range of platforms, including both centralized and decentralized exchanges. This capability is vital for ensuring consistent liquidity and protecting token projects from manipulations by malicious actors who could exploit liquidity for personal gain, thereby harming the token’s value and the project’s reputation.
Market makers can employ strategies such as using arbitrage bots to capitalize on price discrepancies across different exchanges, potentially generating profits for the project. Effective liquidity management also involves monitoring and adjusting the token’s supply on various exchanges in real time to swiftly respond to market demands and changes. This responsiveness helps maintain a stable token price and enhances the token’s credibility and attractiveness to both current investors and potential new participants.
Another critical factor to consider when evaluating market makers is their pricing structure. In the crypto industry, it’s common for market makers to adopt a Software as a Service (SaaS) model, with costs varying significantly. Fees can range from a relatively modest 2,000 USDT per month for a single pair on an exchange to as much as 10,000 to 15,000 USDT per month. Token projects must weigh the benefits of engaging a market maker against the potential financial burden. Committing to high fees without a reasonable expectation of return on investment can lead to financial strain.
Effective reporting is a vital aspect when selecting a market maker. Because cryptocurrency exchanges are relatively nascent compared to their traditional counterparts, many are still developing the infrastructure necessary to provide comprehensive accounting data. This gap makes it crucial for token projects to partner with market makers who maintain meticulous records of all trading activities and can furnish detailed, reliable reports on a monthly or weekly basis. The availability of accurate and timely reports from a market maker can significantly ease the administrative burdens faced by crypto token teams, particularly when navigating complex tax and regulatory environments. Therefore, when vetting potential market makers, token projects should prioritize those that support robust reporting practices to ensure compliance and facilitate effective financial management.
Customer service is crucial when choosing a market maker for crypto projects, as the crypto markets operate 24/7 and require quick adaptability. Market makers must be able to adjust trading parameters like spread, depth of liquidity, and price support rapidly upon the project team’s request. The traditional slow customer service model—where requests escalate through multiple levels before changes are implemented—is unsuitable for the fast-paced crypto environment. Token projects need a market maker that not only manages liquidity effectively but also responds swiftly to their needs, allowing them to focus on product development and community engagement without worrying about liquidity management delays.
For larger token projects listed on both spot and perpetual futures markets, hedging is a critical strategy. When market makers conduct spot market transactions for these tokens, they can use hedging to manage exposure effectively. By offsetting potential risks through positions in futures markets, market makers can stabilize the token’s value during periods of price drops. For liquid, large-cap tokens, hedging is not merely a safety measure but an essential tool to safeguard against the inherent volatility of crypto markets. By swiftly neutralizing changes in exposure via hedging on perpetual venues, market makers provide a stable foundation for the project. This exposure management ensures that, despite fluctuations in the spot market, the token’s overall financial health and market perception remain secure, helping to maintain investor confidence and market integrity.
To provide the most comprehensive market overview, we’ve divided our review into two main categories: the top five non-custodial market makers and the top five custodial market makers. Our rankings are based on extensive conversations with numerous market makers, exploring their offerings and operational methods. Additionally, we interviewed multiple token projects to gauge their experiences and satisfaction levels with their respective market makers. This dual approach has provided us with deep insights into the essential factors that token projects should consider when selecting a market maker. Our list is designed to be a reliable starting point for projects seeking a market-making partner. Whether you prioritize retaining control over your tokens or require a custodial solution to meet regulatory requirements, our guide aims to assist you in making an informed decision that aligns with your project’s needs and goals.
TOP 5 NON-CUSTODIAL MMs
1- Margin:
Margin, a German-based startup, has established itself as a notable player in the crypto market-making sector over the past decade. Founded in 2014, Margin was at the forefront of innovation with the development of the first dedicated crypto trading terminal. This technological advance set a new standard in the industry and solidified Margin’s reputation as a reliable and trusted partner in the space. Their long-standing presence and consistent performance make them a go-to choice for projects looking for seasoned market-making services.
2- Flowdesk:
Flowdesk, a crypto market maker founded in France in 2019, specializes in providing liquidity solutions and market-making services for digital asset markets. The company supports both centralized and decentralized exchanges, offering non-custodial market-making services. In addition to effective liquidity management, Flowdesk is known for its solid customer support and assists with decentralized exchange (DEX) integrations. However, their services tend to come with higher fees than some peers.
3- Vortex:
Vortex, a crypto market maker founded in 2020 and based in Europe, focuses on building long-term partnerships and maintaining high customer retention rates. The company is recognized for its robust customer service. However, as one of the younger players in the industry with a relatively small team, Vortex does not yet offer the same level of technological sophistication as some of its more established competitors.
4- CLS:
Coin Liquidity Solutions (CLS), based in Tallinn, Estonia, has a team mainly consisting of Chinese professionals. The company leverages its diverse cultural background and international experience to provide customized market-making services and liquidity solutions for digital asset projects worldwide. CLS holds a significant share of the non-custodial market thanks to its large team and competitive pricing. However, feedback from some projects highlights concerns about the alignment of strategy and communication issues.
5- Skynet:
Skynet Trading, a crypto market maker founded in 2019 and headquartered in Hong Kong, also operates an investment arm, which can be advantageous for projects seeking both capital and market-making services. While Skynet offers strong customer support and the potential for capital investment, it is among the most expensive non-custodial market makers. This creates a challenging balance for projects weighing budget constraints against the opportunity to access additional funding.
TOP 5 CUSTODIAL MMs
1- GSR:
GSR, founded in 2013, is a global leader in crypto market-making, providing liquidity solutions, trading strategies, and risk management services to both centralized and decentralized markets. Known for its robust infrastructure and operational transparency, GSR supports a broad range of digital assets and collaborates with exchanges and token issuers to ensure efficient trading. Its focus on regulatory compliance and risk management has solidified its position as a trusted partner in the space.
2- Cumberland:
Cumberland, the cryptocurrency trading arm of DRW, a financial trading firm, provides deep liquidity and market-making services across digital asset markets, with a strong focus on institutional clients. In addition to serving exchanges, Cumberland operates a robust OTC branch catering to high-net-worth individuals and acts as a liquidity source for smaller OTC desks. The firm’s deep liquidity pool and ability to execute large trades efficiently have made it a key player in the crypto ecosystem
3- Keyrock:
Keyrock is a Belgian-based crypto market maker founded in 2017, using proprietary algorithms and trading infrastructure to provide liquidity solutions for digital assets. They have a large and capable team of around 200 people covering different verticals of the business such as token projects, institutions, OTC Desk and tech. They have also managed to raise several rounds of funding from respectable companies in the space such as Ripple.
4- G-20:
G-20 is a specialized market-making firm that focuses on providing liquidity and trading services for digital assets, leveraging advanced algorithms to enhance market efficiency and stability. G-20 has built a reputation for its agility and responsiveness, particularly in niche markets and emerging tokens. Its focus on providing tailored solutions for both exchanges and projects has helped it carve out a distinct role in the industry.
5- DWF Labs:
DWF Labs, headquartered in Dubai, is a multi-stage web3 investment firm and global digital asset market maker, providing liquidity, trading services, and capital to emerging projects within the crypto ecosystem. However, due to the combination of a custodian model that does not fully align with the token project’s goal and the large number of clients, their customer service could be improved. A big advantage of partnering with DWF Labs is access to their venture arm.
Selecting the right market maker is crucial for crypto token projects aiming to enhance liquidity, stabilize pricing, and operate effectively across both centralized and decentralized exchanges. For newer projects, we advise opting for non-custodial market makers, as they typically offer greater control over tokens and operational flexibility. Whether choosing custodial or non-custodial services, important considerations include pricing structures, reporting capabilities, customer service responsiveness, liquidity management, and hedging strategies. This comprehensive analysis, derived from extensive discussions with market makers and feedback from various token projects, illuminates the distinct requirements and choices available.
By conducting thorough due diligence and aligning with a market maker that shares your project’s vision and goals, you can forge a strong partnership that supports your token’s success. Carefully evaluating potential partners ensures that you make an informed decision that not only meets your operational needs but also fosters a collaborative relationship conducive to long-term growth. Ultimately, selecting a market maker that complements your project’s objectives is essential for establishing a robust market presence and achieving your strategic aims.
Source: https://cryptoticker.io/en/10-best-crypto-market-in-2024