The Death Spiral That Peaks at Launch: The Inevitability of Liquidity Exhaustion in Altcoins from a Delta-Neutral Perspective
With tokens borrowed based on strength, why should I help you work hard? What happens behind the scenes after the project party hands over the tokens to market makers? This article will unveil the core logic of algorithmic market making, analyzing how market makers use your tokens to exchange for trading depth, price stability, and market confidence.
First, the conclusion: Due to the current lack of liquidity in altcoins, the optimal solution for market makers in a call option model is to sell the project's tokens right after they receive them. Then you might ask, if they sell the tokens right away, what if the tokens rise in price later? Won't the market makers have to spend a lot of money to buy them back?
Reasons:
1. The strategy of market makers is delta neutral; they do not take positions — they aim to ensure profit without loss.
2. The call option actually caps the maximum price, limiting the market maker's maximum risk exposure (even if you surge 100 times, I can still buy at double the price).
3. These types of market maker contracts usually last 12-24 months; with so many projects in the current market, most peak right after launch. How many can last until a year later?
4. Even if they survive 1-2 years, if the coin price skyrockets, the profits from the price fluctuations will be enough to cover the losses from selling early.
