Liquidity problem for Token Projects

Many token companies raised a substantial amount of capital during the past 2 years. Unfortunately, many of them faced the following challenges:

• Lack of liquidity: investors and project founders could not monetize their investment due to a lack of liquidity in their token
• Low trading volume: traders and investors are not incentivized to trade the token because of high transaction costs due to market impact
• Price manipulation: low liquidity makes it easier for bad actors to manipulate the price of a token
• Low interest in the token project: difficulty in liquidating positions makes investors less likely to invest in a token project after launch
• Difficulty listing on major crypto exchanges: lack of market makers and committed liquidity in a token makes it more difficult to list on major crypto exchanges, giving less visibility and interest in a token project

By adopting a market maker who provides liquidity on pre-agreed terms, token companies can potentially expect the following benefits:

• Higher liquidity: by having enough liquidity available in the token, investors and founders can invest or liquidate their positions more easily
• Higher trading volume: higher liquidity potentially attracts more interest and trading in the token due to lower transaction costs and market impact
• Lower probability of price manipulation: higher liquidity makes it more difficult to manipulate the price of a token since more capital is needed to move prices
• Higher interest in the token project: more people trading in the token and possible listing on bigger exchanges create more interest and discussion around the token project
• Easier listing on major crypto exchanges: more reputable crypto exchanges are more likely to list a token on their platform knowing that there is a market maker committed in providing liquidity 24/7

How does Crypto Market Making Work?

Market making consists in providing liquidity on a defined cryptocurrency by submitting both bid and ask limit orders on a crypto exchange. Market makers make profit by collecting the bid-ask spread over multiple trades. A fast and stable technology and proper risk management are essential to make markets successfully.