1. No influence of market makers

• Insufficient trading depth, increasing transaction costs

Without market makers, the market depth is insufficient to conduct large-scale token transactions at reasonable prices, resulting in increased transaction costs. For example, in an order book based transaction, if you want to buy 100 tokens, but the sell order only offers 50 tokens at 4000U and another 50 at 5000U, the final transaction cost will be 45000U. In liquidity pool transactions on decentralized exchanges (DEX), due to insufficient liquidity, transaction slippage may be large, further increasing transaction costs.

• Lack of liquidity and reduced project attractiveness

Without the participation of market makers, the liquidity of project tokens may be low, trading volume may be sparse, and the market's confidence in the project party may decline. This may even cause users to worry about the project running away, thereby exposing real user data.

2. Advantages and risks of market makers

• Advantages

The participation of market makers can improve the liquidity and depth of the market, help stabilize currency prices, and solve the problem of high transaction costs for users.

• Risk

Although cooperation with market makers can help solve liquidity problems, it also brings the risk of currency price manipulation. A common cooperation method is "lending tokens + call options", which may cause market makers to manipulate prices based on market changes. For example:

• When the currency price drops by 50%, the market maker can buy back the tokens at a low price and return them to the project, which may give the market maker an incentive to drive down the currency price.

• When the currency price rises by 100%, the market maker can purchase the token at the original price and return it to the project, which gives the market maker an incentive to push up the currency price.

3. The ultimate goal of the market maker

• Whether choosing to short or push a token higher, market makers’ ultimate goal is to make a profit and will typically dump the token when market conditions are right.

4. Other forms of cooperation

• In addition to "lending tokens + call options", project parties and market makers also have other cooperation models, such as fixed wages or additional bonuses, which require market makers to ensure market liquidity and depth.

in conclusion

This briefing has a preliminary discussion on the role and influence of market makers. The specific market making mechanism and its risk management need to be further explained by professionals.

#SUI创新高 #Meme浪潮持续，你看好哪一个？ #多军的反击 #9月美国CPI实现6连降 $BTC $ETH $BNB