Web3 projects need to go above and beyond to ensure there's plenty of liquidity behind their native tokens

Nobody wants to miss out on the rapid gains to be made during a crypto bull run, and for Web3 projects that means going above and beyond to ensure there’s plenty of liquidity behind their native tokens.

In the dynamic realm of cryptocurrencies, projects are constantly seeking ways to stand out and achieve significant gains, especially during a bull run. For Web3 projects, this endeavor is multifaceted and requires a holistic approach, encompassing sufficient liquidity for their native tokens.

Many projects have found great value in partnering with crypto market makers. These firms closely collaborate with projects to ensure not only is the project’s token useful, but it’s also able to maintain value despite shifting market conditions.

Market makers are becoming increasingly crucial in today’s crypto industry. They provide the necessary liquidity for investors to buy and sell digital assets smoothly, without encountering any significant price impact, especially when handling large trades. This role is even more important for newer Web3 projects, whose tokens may not yet be widely recognized or have a strong presence in the market.

Through their partnership with a market maker, they can guarantee that there will always be enough liquidity for traders to buy and sell at fair prices, ultimately leading to a robust economic foundation for the project.

However, no two market makers are the same, and there is a cautionary tale to be told. Some market makers, despite being presented as “partners,” engage in manipulative tactics to artificially inflate the value of the tokens they are tasked with supporting.

This includes engaging in wash trading, an unethical practice where they buy and sell an asset repeatedly to create a false impression of high trading volume. Such actions can quickly erode the integrity of an otherwise promising project.

Therefore, projects must carefully identify reputable market makers who prioritize an ethical approach to trading tokens, an attitude that aligns with the project’s long-term objectives and builds trust in their native assets. But how can they differentiate between legitimate and illegitimate market makers?

What to look for in a market maker?

First, it’s important to understand the needs of your project and how your market maker intends to help you achieve your objectives. That requires a careful assessment of the market maker’s technical infrastructure, its ethics and experience, its track record and it’s ability to adapt to suit the peculiarities of your specific project.

A reliable market maker is meant to deliver the following:

* Deep liquidity at multiple price points

* Tight bid/ask spreads

* High uptime and responsiveness

* Low latency in reacting to changing market conditions

* A high order fulfilment rate

* Adaptable trading strategies

* A proprietary trading platform and algorithms

* Complete transparency in their operations and reporting

How to tell it does this?

With the collapse of FTX and other exchanges still fresh in many investor’s minds, the importance of a solid track record is all-important. Web3 projects need to identify market makers with a strong reputation that’s based on their long-term performance. That means looking for measurable prior results, including the ability to maintain orderbook depth and tight spreads during volatile markets.

Reputable market makers will ensure that key performance indicators or KPIs aren’t just used in their corporate presentations, but consistently achieved over the duration, in order to demonstrate their ability to maintain liquidity and meet their uptime commitments.

In addition, projects should carefully examine the market maker’s infrastructure. The best, most genuine market makers will have a proprietary trading platform and algorithms that provide them with a competitive advantage over their rivals. Some advantages include high-frequency trading algorithms that continually adjust bids in milliseconds, proximity to the exchange’s servers and specialized hardware and software for trade execution. Alternatively, some market makers specialize in arbitrage models, relying on mathematical strategies to identify mispriced assets.

As for the most important metrics, it’s essentially to keep an eye on factors such as latency, or the market maker’s reaction speed to changing market conditions, its order fulfilment rate, the percentage of completed order requests, the precision of its bid/ask spreads and the depth of liquidity at multiple price points.

These KPIs are key to identifying a market maker’s ability to maintain sufficient liquidity during volatile periods, helping projects to thrive during dynamic markets. But of course, most crypto project founders are not financial experts, and so they lack the expertise to properly assess these metrics and understand a market maker’s performance.

Fortunately, Kairon Labs Chief Technology Officer Mathias Beke offers some advice. In an interview with DailyCoin, he pointed out that the key thing to remember is why the project is hiring a market maker in the first place. Their job is to supply a continuous flow of buy and sell orders to exchanges to ensure price stability. By doing this, investors can easily adjust their positions without having any serious impact on the asset price, even if they buy or sell large volumes.

“Our algorithms are meticulously crafted to handle large trades and strategically distribute them over time to minimize their market impact,” Beke explained.

In addition, projects also need to look for a market maker that provides transparent reporting so they can easily check it has been able to maintain consistency as the market evolves over time. By looking for