January 17, 2022

Growth of Market Making & Crypto Liquidity Services market

Market makers deal with a core element of an efficient and sustainable financial system – liquidity. Liquidity is the ability to easily buy and sell an asset at any time without drastically affecting its price. It is essential for the survival and overall success of any token.

Market makers are important players in the digital asset ecosystem that help not only token projects but also Centralized (CEXs) and Decentralized (DEXs) Exchanges to sustain liquidity and attract investors. They play the role of an intermediary between a buyer and a seller, quoting both parties the price of the token to maintain a sustainable infrastructure for investors and traders. The promise behind market-making includes minimizing bid-ask spreads, reducing volatility, increasing order book depth, preventing drastic market manipulation, and enticing greater volumes to the exchanges. All successful token projects and exchanges are working with market makers, and the demand for liquidity services only grows as the crypto industry matures.

But what are the key factors behind the growing demand for market-making and crypto liquidity services? Let’s find out!

Institutional investors gaining more exposure to cryptoassets

Since the conception of Bitcoin in 2009, the sentiment towards cryptocurrencies has evolved over the past decade. 2021 has become a year when institutions have finally shown the signs of adopting cryptocurrencies due to the untapped possibilities with blockchain technology.

In addition to the outstanding performance of Bitcoin when compared to pretty much any other asset, there are other factors that drive institutional investors towards crypto, including the diversification of asset strategy, with over $17 billion of institutional capital being pumped into the industry throughout 2021.

A recent report from Reuters highlights that 7 out of 10 institutional investors expect to buy or invest in crypto assets within the near future, with an ever-increasing number of investors allocating portions of their portfolios to cryptocurrencies.

Furthermore, Nickel Digital Asset Management conducted another survey that confirms institutional investors are constantly taking more significant steps into the crypto world. For example, 82% of respondents stated they intend to increase their crypto portfolios over the next two years. Additionally, over 30% expressed that the increased involvement from major corporations and fund managers has increased their confidence to invest. 

Liquidity becomes crucial for token projects that want to get such investors on board. Partnering with a market maker is one of the main components to make a token liquid and attractive to investors who tend to perform more sophisticated trading strategies with a considerable volume of an asset.

Emergence of Web 3.0 and token economy

As of November 2021, there were over 6,000 crypto tokens in circulation, according to CoinMarketCap. As of January 2022, this number has risen to 8000 tokens and continues to grow. 

While many coins will not provide any value to everyday users and eventually fade, the emergence of blockchain technology brings a lot of value to different industries, starting from traditional finance, to gaming, social media, and retail. 

With the ongoing massive mainstream adoption, one can expect that there will be more altcoins that provide essential services to users for specific blockchains. Furthermore, with the transition to Web 3.0, users can expect more tokens to enter circulation as Web 3.0 aims to be more autonomous, intelligent, and open. In effect, Web 3.0 is merging the societal and financial benefits to create a decentralized network and allows further monetization for all users involved due to the composable nature of open-source software. This opens opportunities for developers to adapt and improve existing projects and thus create completely new tokens. Therefore, we can expect that throughout 2022, the number of crypto tokens will continue to rise and all of them will require a decent market-making strategy to stay competitive.

The trend for cross-chain token launches

With the development of the DeFi industry, a wave of multi-chain token launches triggered the need for bridging liquidity. A cross-chain bridge allows users to transfer tokens, smart contract instructions, or data between blockchains in a fast and safe way. Without it, investors have to go through different exchanges and subsequently pay higher fees. Therefore, cross-chain market-making becomes essential to sustain liquidity on different chains and exchanges. 

The current market provides different sophisticated approaches to liquidity provision and market making across centralized and decentralized exchanges on different chains. An example of a decentralized exchange running on Binance Smart Chain bridging CeFi liquidity to DeFi is WOOFi Swap. It allows providing on-chain liquidity in a way that better simulates the price, spread, and depth of an order book on centralized exchanges. In addition, new product innovation (Synthetic Proactive Market Making) developed on the platform allows for higher capital efficiency than all other DEXes on the BSC market. The innovations like that could help to reduce reliance on inflationary rewards to rent liquidity, support new players and enrich the industry.

The cryptocurrency market is extremely dynamic and it is essential to choose the right partner for this journey to help your assets grow. Market-making and crypto liquidity services are worth considering to create a liquid and efficient market for the token and stay competitive whatever the market conditions are.

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