Market making in the cryptocurrency industry is a newly packaged avatar compared to the traditional market makers. While some of the fundamentals are still intact, digital assets present formidably unique market-making opportunities.
In this edition, we bring to you one of the top crypto market-making providers, Kairon Labs. But before we do that, let’s dig in a little to understand what the typical functionality of a crypto market maker is and understand how crypto market-making strategies work.
Functionalities of the crypto market maker
Market making is the practice of creating broader markets for traders to trade assets. One of the most important parts of crypto trading is liquidity with a high transaction volume and tighter spreads. It is the role of the market maker to facilitate trading at lower costs, higher liquidity, and tighter spread which can be achieved with these functions.
Understanding markets
In traditional markets, market makers had to deal with a lot of quantitative finance. This was one of the most significant factors as it helped in setting the right buy/sell price for optimal transaction levels. In the crypto space, it is equally important for crypto market makers to understand how the crypto market works. A deep understanding of the prevalent market conditions will refine the crypto market-making strategies and its ability to spot prices. A proficient crypto market maker is aware of the fluctuations and market volatility. They create algorithms only after taking into account the market variables because it gives the right sense of price fluctuations. This also requires due market research to gather information regarding any viable cryptos.
Creating algorithms
Apart from understanding the market a good crypto market maker also has to possess skills, and technical know-how to create algorithms that will effectively curb the bid-ask spread to keep it as low as possible to register early gains. Its algorithms should serve two purposes:
Algorithms that control the spread
A good crypto market maker has to generate robust algorithms that would keep spreads competitively low compared to other exchanges. Crypto market-making algorithms guarantee that spreads are stabilized well enough in sync with their role to provide liquidity. The levels of spreads also depend on other conditions including the agreement between a market maker and exchange, volatility, and an overall liquidity scene of a particular trading pair. Crypto market makers hence create algorithms to fill buy orders when the sell orders are way ahead of organic buyers. The strategies that they use range from hedging, trade-outs, fair-price calculations, and order-flow predictions. These strategies have been effective in the sense that there is liquidity for the users that serves to automatically protect the token price, thereby limiting volatility and maintaining a tight spread.
Algorithms for generating additional demand
Crypto market-making strategies are dysfunctional without algorithms to tighten the bid-ask spread, but there are more directional strategies available as well to create additional demand.
How?
By buying back a small quantity of the token in circulation.
In the traditional asset markets, companies typically buy back stocks when they have extra cash which they would reinvest otherwise. Share repurchase or buyback as it is called is great news to investors because they automatically lift the prices by limiting the supply of shares for sale. A stock buyback signals confidence from the issuing company toward the market.
The cryptocurrency buyback strategy works by gradually buying back a small percentage of the token in circulation. When purchases of the token supply are made, they are held with the market maker. This holding increases the price because of the limited supply available.
Good crypto market-making strategies your market maker should use
So, in other words, market making is the practice of creating better markets for traders to buy and sell assets in order to boost liquidity in the market. As a general practice, traders keenly watch a market and when they believe an opportunity presents, they want to make a trade immediately. This is where the role of a market maker comes in.
Otherwise, it might be some time before they find a buyer or a seller of the same asset and at the same price. The wait for the order to be fulfilled can be long which defies the purpose of making the trade. Such a wait can have repercussions on the overall markets such as:
- The decrease in liquidity levels leads to higher trading costs.
- Higher trading costs and lower liquidity accompany lower volumes which can perish investor confidence.
The typical crypto market-making strategy focuses on maximizing the value of its portfolio and increasing profits. But in the quest to increase the profit over time, a good crypto market maker will always analyze the market and make correct decisions at any time about the bid and ask quotes. In this process, they also have to remember to achieve a balance between two desirable yet incompatible features without compromise which are:
Widespread vs narrow spread – which is low volume, high profit pitted against high volume and low profit.
Aggressive vs safe quotes – which is to either increase or reduce the probability of buying and selling assets
In the cryptocurrency market, several tokens lack liquidity which is why they are traded in low volumes. Traders in such situations can manipulate token prices through pumping and dumping and many investors are unable to open large positions in desired assets without either losses or delays. This makes the markets inefficient.
Good market makers have tools that they should use in these situations and that is to encourage order book depth. The larger the volume there is in the order book, the more active the traders turn out to be. A reliable crypto market-making strategy calls for encouraging fair price discovery and order fulfillment.
Coming down to the basics, the effectiveness of a good crypto market strategy is a tighter spread and high liquidity that enables entries of new traders in the process. To achieve that, it is important that you work with a top crypto market maker and we recommend Kairon Labs, which is arguably one of the best crypto market makers in the world.
Why is Kairon Labs preferred over many others?
Kairon labs, a byproduct of some of the best brains from the Netherlands and Belgium, from the beginning has focussed on personalized market-making services and have inherently decided to remain small and cater big.
Their target is to provide customized solutions in sync with the new-age crypto market making bots that have become a necessity in the industry. They are especially sought out as a crypto market maker because they use proprietary enterprise-grade software and cutting-edge custom algorithms.
Kairon Lab’s special area of expertise is utility tokens and stable coins. They also have their proprietary trading software hooked up to over 120 exchanges.
The team at Kairon Labs possesses robust experience and qualifications in informatics and financial markets and that makes them a great place to begin your crypto venture.
The organization carries an enterprise architecture building experience that makes them one of the most preferred brands in the market-making space.
Let’s expand a bit more on what makes Kairon Labs stand out in the race.
Crypto market-making strategies
While most crypto market makers are overpriced, Kairon Labs are preferred among top token projects because of its continued focus on creating sustainable relationships with clients. Kairon’s market-making services substantially improve liquidity depth in the order books along with lowering the bid-ask spread.
Kairon Labs also offer proven and time-tested algorithms that are built with safety measures and effective risk management protocols in mind. Kairon also has a novel system of tracking Whale wallets with its full Ethereum and Binance Chain tracking software. While the client upholds custody of their funds, Kairon takes care of the trades through API access without the need for any withdrawal rights to the account.
How does this work?
- The Kairon team conducts an in-depth analysis of order books and whale wallets.
- Based on past history, it tests different strategies in a no-risk manner. After conducting a test, evaluation of the test results leads to the configuration of its market-making strategies. To draw an analogy, just like how a Minimum Viable Product(MVP) is like the prototype of the actual product to test the success rate, these testing strategies are done on a small scale to understand the effects.
- Since the crypto markets are active 24/7, Kairon labs also tweak the trading strategies with constant follow-up.
- The organization is transparent in its communication as it looks at providing regular updates and bi-weekly reports on enhanced trading volumes, P&L, and macro market tendencies, plus regular conference calls to discuss strategies and results. The client needs open, transparent communication with true updates, and Kairon Labs understands this well.
Overall benefits for the clients
- Kairon’s effective crypto market-making strategies provide the necessary boost to organic volumes thereby attracting more investors and traders.
- Market making mitigates the impact of heavy price fluctuations that might discourage investors and traders from trading on a certain asset
- One thing that the firm promises which other crypto market makers have failed to deliver on are to provide full transparency on the exchange balances and executed trades
- Kairon Labs’ fees are relatively low compared to other top crypto market makers who charge exorbitant fees
- The firm also does not believe in crowding its client base with too many clients. Instead, they focus on clients with personalized service so that their project success ratio is maximized.
For all these reasons, Kairon Labs is a major standout in a sea of many crypto market makers. New projects are entering the space every day, and it is important to select a crypto market maker that has real experience, expertise, honor, and one that gets you results. Regarding crypto market makers, Kairon is definitely at the top of the list.