Who is a market maker and how do they differ in cryptocurrency and traditional financial markets? At the European Blockchain Conference in Barcelona, Cointelegraph discussed this topic in one of the first conference panels featuring key market makers in the crypto industry.
Cointelegraph reporter Joseph Hall draws the analogy that a cryptocurrency market maker is a lot like a hot bartender at a goofy cocktail party asking for too much. Your job is to keep the drink going by providing liquidity and making sure everyone is having a good time while keeping the market in order.
This meant that they secretly hoped that no one would get drunk and do stupid things and destroy everything. Ultimately, market makers must manage risk and ensure that fraudsters keep out attackers like Sam Bankman-Freed and other attackers.
At their core, crypto market makers are the ultimate party planners, but instead of balloons, candy, and Spotify playlists, they leverage algorithms and order books. Chief trading strategist for a major market maker, Stef Vinendaele, suggests, "That's a good definition, but it implies too much power over what the market maker does."
"We are actually the dance floor. In fact, we are the music. We are here to support the party. We are there all the time. We'll be there at 9pm and we'll be there at 5am.”
Vinendaele suggested that market makers are the backbone of a thriving crypto economy and that they aren't really "bartenders controlling who drinks and who doesn't."
The bartender analogy works well for Patrick Heusser, CCO of Crypto Finance. "But someone has to take care of the logistics," he explained. "One has to make sure there are enough beers and drinks and market infrastructure is very important to market makers."
"Otherwise, you're just going to have a great, precious screen, and if you can't or don't want to make certain trades with certain parties, the market isn't as interesting as it could be."
So if the cryptoeconomy is a party, dance floors, music and logistics can be the market makers.
Guilleme Chaumont, CEO of French market maker Flowdesk, explains that we need to remember that “there are no bars in the crypto space; there are dozens of bars. Some of them are centralized or decentralized. They are open 24/7, 365. They have so many cocktails, 20,000 cocktails available. You don't know what's out there."
Furthermore, "prices are not in USD or EUR, but in Bitcoin (BTC) and any cryptocurrency" highlights the difference between building traditional financial markets (TradFi) and building cryptocurrency markets.
In traditional finance, Chaumont explains, it's basically "real estate companies running down their balance sheets trying to make profits and losses." There is a more technologically advanced approach to crypto, as assets are much more difficult to value.
After a long career in traditional finance, John Murillo, B2Broker's chief trading officer, explains how brokers choose market makers, how to stay: "You just choose which party you want to be at because everyone is having fun."
“Our approach to cryptocurrency producers is no different than it was in my past, where you judge partners, where you choose who to contact and integrate with. I think this is the key to building strong solutions."
In summing up, Schoman concludes that market makers have a "great responsibility". He shared that while bitcoin may have revived $25,000 recently, the industry would not have recovered without the help and support of market makers.
