Journalist Colin Wu's team published an article dedicated to market making. It raises the question of what happens to the tokens that projects transfer to market makers. The author notes that such agreements are often made under the pretext of supporting liquidity and stabilizing price. However, the actual use of assets may differ from initial expectations.
The algorithmic process implies that the market maker creates market depth, keeps the price within set limits, and instills confidence in the project among participants. To achieve this, they use the received tokens, placing buy and sell orders aimed at reducing volatility. Such activities should enhance the market image of the cryptocurrency and attract new traders.
Nevertheless, market makers have no direct obligation to unconditionally support quotes. Under certain conditions, they may sell part of the received tokens to profit from price fluctuations. This raises concerns that such tactics could exert pressure on the price and lead to its decline.
The key takeaway from the article is that when transferring tokens to market makers, projects must understand that their interests do not always align. The former operate according to their algorithms, and strategies may change depending on the market situation. This means that the effect of cooperation can be both positive and negative.
Startups are advised to clearly define the terms of use for the tokens transferred and to monitor the actions of market makers. The transparency of such agreements can reduce risks and protect the interests of both the project team and its investors. The publication aims to help market participants better understand the mechanics of market-making algorithms and evaluate the associated dangers.
