Market makers are some of the most commonly misunderstood market participants, both by founders and retail traders. Their impact on the market is huge. This article is a summary of an AMA I held with EasyMM in UniGems. We’ll discuss what market making is, how teams can use it to leverage the growth of their project, and other important need-to-knows.
What is Market Making?
Market making is the act of providing liquidity to a market, by offering both buy and sell orders. Ensuring you can always trade without causing large jumps in price. However, market making goes way beyond that.
Imagine a team full of highly experienced programmers, none who have any expertise in skillfully managing assets. The product they put out can be great, but what will happen to the market? Part of market making includes guiding projects on how to interact with their market, in a way that benefits both the team and the community.
“[Market makers are those who] comprehend how to skillfully manage assets that facilitate the development of projects.” -David Arakelian
Benefits of Market Makers
High market volatility, FUD and whales exiting large positions. Red candles are scary, and panic-selling ensues. A negative feedback loop forms, and millions get wiped from your market cap. How would the team feel, looking at the chart, knowing this was completely preventable?
Market making offers a layer of protection through manual intervention. The market maker can choose to buy tokens back, and paint a chart that reflects the fact that there is no reason to panic sell. This otherwise unfortunate event can be turned into a positive one, showing resilience while giving the community an opportunity to accumulate at a discount.
Do You Need a Market Maker to Launch on a DEX?
If you care about your launch, yes. Decentralized exchanges like Uniswap offer their own “built-in” automated market maker (AMM). It truly is revolutionary technology, but it does not come with the protection traditional market making offers. This is especially noticeable at launch. A rough launch can wipe away a huge part of the community the team spent so much time, money, and energy building. It can haunt a project for the rest of its lifespan.
Launch is for many projects the most volatile their price will ever be. Because of that reason, it is very vulnerable moment for both the community and the project. It is common to see price spiral out of control and panic to grip the market. Entirely preventable.
Not to mention the effect a market maker has on the smoothness of a chart. Would you even trade the price action on the right? I wouldn’t.
Summary
At the end of the AMA, I asked the EasyMM to summarize our conversation. These are the key takeaways:
1️⃣Market making enhances liquidity, ensuring traders can buy and sell without causing significant price impact.
2️⃣It stabilizes token prices, reducing volatility and encouraging investor confidence.
3️⃣By maintaining order book depth, market making attracts larger investors looking for substantial entry and exit points.
4️⃣It can help prevent price manipulation by maintaining a consistent presence of buy and sell orders.
5️⃣Market making supports overall market health, contributing to a project’s long-term success and credibility.
If you want to read the full AMA, click here.
If you want to check out EasyMM, click here.
