Market Makers in the Crypto Industry: Party Planners or Bartenders?
What is a market maker and how are they different in crypto and traditional financial markets? At the European Blockchain Conference in Barcelona, Cointelegraph discussed the topic with key market makers in the crypto industry on one of the conference’s first panels.
Cointelegraph reporter Joseph Hall drew the analogy that crypto market makers are a lot like cool bartenders at a very high-tech and unabashedly nerdy cocktail party. Their job is to keep the drinks flowing, i.e. provide liquidity and make sure everyone is well while maintaining order in the market.
That means they secretly hope no one gets too drunk, makes a fool of themselves, and ruins everything. Ultimately, market makers are there to manage risk and make sure the bouncers kick out the likes of Sam Bankman-Fried and other bad actors.
Essentially, crypto market makers are the ultimate party planners, but instead of balloons, cake and a throbbing Spotify playlist, they use leverage algorithms and order books. Head of commercial strategy at a major crypto market maker, Stef Wynendaele, suggested that “It’s a great definition, but it implies too much power to what a market maker does.”
“We are actually the dance floor. We are indeed the music. We’re there to support, you know, the party. We are there at all times. We are there at 9 pm and we are there at 5 in the morning.”
Wynendaele suggested that market makers are the foundation of a thriving crypto-economy and that they are not actually “the bartender who controls who is drinking or not.”
For Patrick Heusser, Chief Commercial Officer at Crypto Finance, the bartender analogy works well. But “Someone has to do the logistics,” he explained. “Somebody has to make sure there’s enough beer in the back and stuff for the drinks – and market infrastructure is super important for market makers.”
“Otherwise you just have fancy flashing price screens, and if you can’t settle or if you’re not comfortable settling certain trades with certain counterparties, the marketplace is not as attractive as it should be.”
So if the crypto economy was a party, the market makers could be the dance floor, the music and the logistics.
Guilhem Chaumount, CEO of market maker Flowdesk based in France, explained that we also have to remember that in the crypto space, “there is not one bar, there are 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,” emphasizing the distinction between traditional financial marketing and crypto marketing.
For traditional finance, Chaumont explained, it is mostly “proprietary trading firms that operate off balance sheet and try to generate profits and losses”. Whereas in crypto it is a more technological approach because the assets are infinitely more difficult to price.
After an extensive career in traditional finance, John Murillo, a chief dealing officer at B2Broker, explained that the way brokers choose market players remains the same: “You just choose which party to attend because everyone has a party.”
“Our approach to crypto producers is no different than it was in my old days, where you consider counterparties, where you pick and choose who you want to connect and integrate. I think that’s the key to creating a reliable solution.”
All in all, Chaumant summarized that market makers bear a “great responsibility”. He shared that while Bitcoin (BTC) may have recently regained $25,000, the industry will not recover without the help and assistance of market makers.
