GuShiio.com Author @ octopusycc
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If GPS and Shell have market maker problems at the same time, it is not a special case, which is obviously the tip of the iceberg of the industry problem.
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1. To talk about the problem of market makers, we must first talk about the operating mechanism of market makers.
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The market-making business of market makers is to make bilateral quotations for buyers and sellers to maintain the liquidity of the market and the relative stability of prices. There is not much money in this part of the traditional market, and the same is true in the encryption market, so exchange incentives, fees and project incentives are needed to subsidize (or allocate funds to spot). Normal Delta one market trading loss is very normal.
CME or Eurex in foreign commodity markets basically have additional incentives in addition to posting service fees. Otherwise, the market maker will not make a profit or earn less. That is to say & rdquo;, the market-making organization that ldquo; makes money, may be making money in the village, rarely in the market. But similarly, the market is also in urgent need of market makers, without market makers, the sliding point of the market is huge, and no one is trading, so it is usually the exchange or the target party to subsidize this part of liquidity.
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two。 The core reason why market makers lose money
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The market maker earns the price difference, but is very afraid of the unilateral collapse of prices. And the current encryption market has a common feature, in TGE, there are a large number of direct unlocked selling, and retail investors generally no longer accept the order. That is, after the launch, the selling pressure is in the majority, which is contrary to the fact that the project wants to pull up the shipment when it is online.
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What happened to GPS and Shell
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1. When most people in the market are selling, the purchase order of the market maker as Maker will be constantly traded (forced to buy at a low price), resulting in a backlog of the subject matter (inventory). If prices continue to fall, the subject matter (inventory) will continue to shrink. This belongs to the market maker’s unrealized loss.
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two。 The difficulty of dynamic adjustment of market makers
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Market makers may lower the purchase price (for example, from $1 to $0.8), but if the market collapses too fast, it is too late to adjust. When the market is in the doldrums, market makers tend to hang up the list of the subject matter more passively. The collapse of GPS is from 0.14 to 0.07. As a result, it is not a benign market behavior. It is impossible for market makers to make a profit here, and unrealized loss increases sharply. The current selling price in the market is much lower than the average cost of the subject matter.
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3. So what will market makers do if they don’t expect buying and potential selling?
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As with previous Trump and Milai coins, it provides unilateral liquidity, with only coins and no U.
That is, buying liquidity is sufficient, large selling liquidity is very poor. Here is a small tricks, the token in the hands of the project has no cost, and the allotment of the market maker (with U) is the actual cost.
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So here, if it is disclosed that @ GSR_io is the market maker of the accident project, it was seriously backstabbed by & ldquo; ‘s active market maker & rdquo;, and it is also a victim. (note: often the passive market maker of the encryption project allocates the same amount of capital to the subject matter, which is equivalent to the purchase of the project token by OTC. )
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4. Where is the cost of the market maker?
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The difficulty and professionalism of market-making business is extremely high, and it is a fact that exchanges rely heavily on external market makers. So how does the exchange restrain market makers? Often the market maker and the exchange sign a deposit to the exchange. When there is a market-making problem (such as the pin is too large, the scope of the needle is too large), the exchange will deduct the deposit to compensate the corresponding investment victims.
(note: the heaven and earth needle of shanzhai coins is obviously a reflection of market makers’ failure to do a good job in liquidity management. )
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So why did the market maker still do evil in the GPS project?
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The market has entered a stage where retail investors no longer accept the new currency, and the number of sellers on the online exchange is obviously larger than that of buying. The traditional market-making business does not allow market makers to make money, and if the amount of money that can be cashed out (plus unilateral liquidity) is obviously greater than the margin on the exchange, they will be willing to accept the penalty of deducting the margin from the currency. To cash out a lot of money.
(note: I personally think that a considerable source of profit is the market-making loss of @ GSR_io. )
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The past encryption market vs. Today’s encryption market
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In the encryption market in the past, retail investors generally believed that the Shanghai Stock Exchange had a wealth effect, so they did not worry about whether there would be enough buying after the project was denominated. Now, most retail investors will no longer chase high when they are first launched, resulting in a far decline in buying expectations after the launch of the project.
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The high cost of launching an exchange
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The hard cost of the project in the online exchange is extremely high:
& bull; B may have a combined cost of US $3 million (each deal is different, do not delve into it).
& bull; the combined cost of a second line is US $1.5 million (each deal is different and will not be discussed in detail).
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Additional hidden costs for the launch of the exchange
1. Airdrop to Taiwan dollars: the proportion is quite large, and most of the airdrop into the hands of the pledgee will be converted into a selling order, which is the money that the market maker / project side has to eat.
2. Marketing (marketing): the cost of finding KOL and community publicity is also real, ranging from tens of thousands of units to 1 million units.
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And these projects can hardly come up with so much money before the strategic round, and the strategic round here has become a core issue. You need to take millions of dollars as a cost to go to the exchange, and you need other institutions to inject capital into you. In traditional markets, this is very much like crossing a bridge, except that the institutions of the strategic wheel do not charge interest, but a share of future generations’ currency income. (it is clear that the potential benefits of going online are considerable. )
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So it will force the project side to directly increase the market value after launch, and the FDV is even more than 5 times the valuation of the strategic round. The fundamentals of the project (chain data, actual users, social media data, marketing) are not motivated to continue after the launch of the currency. I will not repeat here, most of the blockchain projects on the currency data are mostly the result of false prosperity and Mao studio.
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This will also directly lead to a significant downside risk for all retail investors who invest several times higher than the valuation.
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The original intention of restricting the margin / currency fee of the project party vs. The evil consequences of reality
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The original intention of restricting the deposit / currency fee of the project party is of course good. Those who are competitive in the market and have poor ability to find resources can be screened out.
But the bad result is that when the market is bad, the project side can only push up the currency price / market value, overdraft project growth and create a bubble to earn the cost of the currency. As @ Max_Sunxxx said, the financing of the strategic round is a debt to the project.
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As a result of false booms and bubbles, participating institutions made huge profits in the bubble, while retail investors in value investments continued to backstab. In such a counterfeit currency market environment, we can not expect any traditional funds to enter the market to buy counterfeit reasons. In my opinion, this is also the biggest problem in the Web3 industry.
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