The appropriate market maker can be from a launch platform for a encoded currency project, open the door to the main stock exchanges and provide valuable liquidity to ensure that it is a trading symbol – but when the wrong incentives are baked in the deal, the market maker can become a sophisticated ball.
One of the most popular offers and misunderstanding in the world of market making is the “loan option model”. This is when the project gives symbols to the market maker, which then uses it to create liquidity, improve prices stability, and help secure the lists in the exchange of cryptocurrencies. In fact, the death penalty was for many small projects.
But behind the scenes, a number of market makers use the controversial symbolic loan structure to enrich themselves at the expense of the same projects that are supposed to be supported. These deals, which are often framed on a low degree of risk and high, can leave the prices of the distinctive symbol and leave the emerging encryption teams scrambling to recover.
“How it works is that the market makers mainly lend the distinctive symbols from a project at a specific price. Against these symbols, they are essentially promising to obtain them on large stock exchanges,” Ariel Givener, the founder of Givener Lu, told Cointelgraph. “If they do not, within a year, they will pay them at a higher price.”
What happens often is that market makers empty distinctive symbols. Initial sales tanks price. Once the price is running, they buy the symbols again with a discount while keeping profit.
source: Ariel Givener
“I haven’t seen any symbol really benefiting from market makers,” said Givener. “I’m sure there are ethics, but the largest that I saw is destroying the plans.”
Play the market maker
Companies like DWF Labs and Wintermute are some of the most famous market makers in this industry. The previous governance proposals and contracts reviewed by Cointelegraph indicate that both companies Proposal Loan options models as part of their services – although Wintermute’s Proposals We call it “liquidity provision” services.
DWF LABS COINTELEGRAPH told that it does not depend on the sale of assets offered to finance positions, as its public budget supports its operations sufficiently via the stock exchanges without relying on the risk of filtering.
“The sale of the distinctive symbols presented in advance can harm the liquidity of the project- especially for small to medium symbols- and we are not in the field of weakening the ecosystems that we invest,” said André Grachiv, the administrative partner of DWF laboratories, in a written response on Cointelegraph inquiry.
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While DWF laboratories confirm their adherence to the growth of ecosystems, some of the ONSAIN analysts and industry monitors The interests raised About her commercial practices.
Wintermute did not respond to Cointelegraph’s request for comment. But in the X Publishing in February, the CEO of Wintermute Evgeny Gaevoy published a series of publications to share some company’s operations with the community. He stated frankly that Wintermute is not a charity, but in “working to earn money by trading.”
source: Evgeny Gaevoy
What happens after the market maker gets symbols?
Gil Bith, co -founder of the ENFLUX Market Industry, told Cointelegraph that the loan option model is not unique for well -known market makers like DWF and Wintermute and that there are other parties that offer such predatory deals.
“I call it information arbitration, where the market maker clearly understands the positives and negatives of deals, but he is able to put them so that it is useful. What they say is, he is a free market maker; you do not have to put the capital as a project; we offer capital; we offer market making services.”
On the other side, many projects do not fully understand the negative aspects of the loan option, and you often learn the difficult way that has not been built in their favor. Buth recommends projects to measure whether lending to their symbols will lead to high -quality liquidity, which are measured by orders on the book and clearly stipulated in the main performance indicators (KPIS) before adhering to these deals. In many loan options deals, the main performance indicators are often missing or mysterious when mentioned.
Cointelegraph has reviewed the symbolic performance of many projects that have signed the loan option with market makers, including some who worked with multiple companies simultaneously. The result was the same in these examples: the projects left worse off than they were when they started.
Six projects worked with market makers under the loan option agreement. Source: Coingecko
“We have worked with the projects that were dismantled after the loan model,” said Christian Svevv, co -founder of the Web3 Accessor Delta3, for CointeleGRAPH.
“It is the exact same style. They give symbols, then they are thrown. This is very much,” he said.
Not all market makers deals in a disaster
The loan option model is not harmful to its nature and can benefit from the largest projects, but the bad structure can turn it quickly, according to Buth.
The lists consultant who spoke to Cointelegraph repeated the condition that his identity is not disclosed, while emphasizing that the results depend on the quality of the project liquidity relationships. They said: “I have seen a project that includes up to 11 market makers – about half of them use the loan model and the rest of the smaller companies.” “The symbol did not get rid of because the team knew how to manage the price and balance risk through multiple partners.”
Advisor compared the form by borrowing from a bank: “Various banks offer different prices. No one runs losing business unless they expected a return,” adding this to encryption, often preferred the balance of power with more information. “It is the most appropriate.”
But some say that the problem works deeper. In a conversation X postArthur Chiong, founder of Defiance Capital, accused the central stock exchanges of pretending to be ignorant of artificial pricing fueled by symbolic projects and market makers working in Lockstep. “Confidence in the Altcoin market is eroding,” wrote. “It is very strange that CEXS turns a blind eye to this tip about this.”
However, the lists advisor stressed that all exchanges are not complicit: “The various exchanges also take extremist measures against any predator market makers, as well as projects that may appear to be rugged. What the exchanges do is that they actually hold this account immediately while they are investigating.”
“While there is a close business relationship, there is no effect between the market maker and the exchange of what is included. Every exchange will have their own due care operations. To be frank, depending on the exchange layer, there will be no this arrangement.”
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Restructuring the incentives of the market maker
Some argue by the transformation towards the “spice form”, as the project pays a flat monthly fee for the market maker in exchange for the services that are clearly defined instead of giving up the distinctive symbols. It is less dangerous, albeit more expensive in the short term.
“The spanning model is much better because in this way, market makers have incentives to work with projects in the long run. In the loan model, you get, for example, a one -year contract; they give you distinctive symbols, emptying the symbols, then after one year, you can repeat the codes.” It has no complete value. “
Although the loan option model appears “predatory”, Booth said, Givener indicated that in all these agreements, both parties concerned agree to a safe contract.
“I do not see a way, at this time, this is illegal,” Givener said. “If someone wants to look at the manipulation, this is one thing, but we do not deal with securities. So, this gray area is still in encryption – [to] To some extent, the Wild West. “
The industry has become more aware of the dangers associated with loan options models, especially with increasingly sudden symbol accidents. in I was now deleted x postOnchain Account Bureau Onchain claimed that a 90 % decrease in the distinctive symbol of Mantra’s om is due to an expired loan option with Falconx. Mantra denied this claim, and clarify that Falconx is a commercial partner, not the market maker.
LinkedIn version of LinkedIn Bureau ONChain Office. source: Nahwail Angelon
But the episode highlights the increasing direction: the loan option model has become a suitable scapegoat for symbolic collapse – often for a good reason. In a place where the conditions of the deal are hidden behind NDAS and roles such as “market maker” or “commercial partner” at best, it is not surprising that the worst audience assumes.
“We are talking because we are reaping the money from the spanning model, but this too [loan option model] “Just killing projects is too much,” said Booth.
Until transparency and accountability improves, the loan option model will remain one of the most misunderstood deals in Crypto.
magazine: What do the encryption market makers already do? Liquidity or manipulation
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