jakiro
Writing: Will Awang
The myth of wealth in the encryption market exists every day. Most of the players come here are not to double it, but to turn over.In this dark forest, the encrypted as the top predators who are closest to money are more mysterious.
Price manipulation, raising selling, and cutting the leeks is synonymous with encryption as a city merchant, but before the encryption of these “derogatory” hats on the encryption, we need to face up to the important roles they play in the encryption market.Especially for early currency projects.
In this context, this article will explain from the perspective of the web3 project party what is a city merchant. Why do we need to be a city merchant, DWF incident, encrypted the main operating model of city merchants, and existing risks and regulatory issues.
I hope this article will be helpful for the development of the project, and you are welcome to discuss and exchange.
1. What is a city merchant?
The world’s leading hedge fund CitadelSecurities defines this definition: The market businessman plays a vital role in maintaining the continuous liquidity of the market. They can achieve this by providing buying and selling quotes at the same time, thereby creating a liquidity, market depth, capable of market depth, capable of market depth.The market environment that allows investors to trade at any time, which inject confidence in the market.
Municipal merchants are essential in the traditional financial market.In Nasdaq, the average of about 14 cashors per stock, with a total of about 260 city merchants in the market.In addition, in the market where liquidity is not as good as stocks, such as bonds, goods and foreign exchange markets, most of the transactions are carried out by market merchants.
The encryption as a city merchant refers to an institution or individual who helps the project with liquidity and purchase and selling quotes in the order book and decentralized trading pool in the encryption exchange. Its main responsibilities are to provide liquidity and in one or more encryption markets to provide liquidity and liquidity andThe market depth is made to make profits through algorithms and strategies to use market volatility and supply and demand differences.
Encryption can not only reduce transaction costs and improve transaction efficiency, but also promote the development and promotion of new projects.
2. Why do we need to be a city merchant?
The main goal of the market is to ensure that the market has sufficient liquidity, the market depth, and stable prices to inject confidence into the market and promote the achievement of transactions.This will not only reduce the threshold for investors’ markets, but also inspire them to conduct real -time transactions. In turn, it brings more liquidity, forms a virtuous circle, and promotes an environment that investors can rest assured.
The encryption as a market businessman is particularly important for the early currency project (IEO), because whether it is to maintain market heat/popularity or to promote price discovery, these projects need to have sufficient liquidity/transaction volume/market depth.
2.1 Provide liquidity
Liquidity refers to the degree of rapid monetization of assets under abrasion, which describes the degree of buyers and sellers in the market for relatively easy, rapid, and low cost.The high liquidity market has reduced the cost of any specific transaction and promotes the formation of transactions without causing significant price fluctuations.
In essence, as a city merchant providing high liquidity, it promotes investors to buy and sell tokens at a faster, large amount, and easier for any given time without interrupting and affecting operations due to huge price fluctuations.
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For example, an investor needs to buy 40 tokens immediately. He can purchase 40 tokes at a unit price of $ 100 in a high -liquid market (order book A).However, in the low liquidity market (order book B), they have two options: 1) purchase 10 tokes at $ 101.2, purchase 5 tokes at $ 102.6105.2 Purchase 15 token, the average price is $ 103.35; or 2) Waiting for a longer period of time to allow the tokens to reach the required price.
Liquidity is essential for early currency projects. The operation of low liquidity markets will affect investors’ confidence and trading strategy, and it may indirectly cause the “death” of the project.
2.2 Provide market depth, stable currency price
In the encrypted market, most assets have low liquidity and do not have market depth. Even small transactions can cause significant price changes.
In the above scene, after investors just purchased 40 tokens, the next available price in the order book B was $ 105.2, which showed that a transaction caused about 5% of the price fluctuations.This is particularly the case during market fluctuations, and fewer participants may lead to significant fluctuations in prices.
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The large amount of liquidity provided by the city merchants will form a narrow sales difference (Spread) for the order book. The narrow trading difference is usually accompanied by a solid market depth, which helps to stabilize currency prices and relieve price fluctuations.
Market depth refers to the available quantity of buying and selling orders at different price levels in the given order book.The market depth can also measure the ability of assets to absorb large orders without major price changes.
As a market businessman with liquidity, the gap in supply and demand has played a key role in the market.Imagine which market you want to trade in the following market?
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The role of encrypted as a market businessman: 1) Provide a lot of liquidity; 2) to provide the market depth to stabilize the currency price, which will eventually help enhance investors’ confidence in the project. After all, every investor hopes to use the lowest transaction costReal -time buy and sell their assets.
three,What are the main players in the encryption?
It can also be said that it can be said to be one of the business at the top of the food chain because they control the lifeblood of the project token.Malter usually cooperates with exchanges, and it is easy to form a monopoly situation. The liquidity of the market is dominated by several large city merchants.
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(Crypto Market Makers [2024 Updated])
In July 2023, the encrypted project World WorldCoin jointly created by Openai Sam Altman was officially launched as a city merchant to reach an agreement. The total borrowed $ 100 million was borrowed from 5 cashors to provide liquidity, and stipulated that it stipulated that it also stipulated thatAfter 3 months, borrowing tokens must be returned, or to buy token at a price of $ 2 to 3.12.
These 5 people include: including:
A. Wintermute is a company registered in the UK. Investment masterpieces: $ WLD, $ OP, $ pyth, $ DYDX, $ ENA, $ CFG, etc., have invested more than 100 projects since 2020.
B. Amber Group, established in 2017, is a Hong Kong company. The board includes a familiar institution such as distributed capital.The team members are also basically clear Chinese faces.Participate projects: $ zkm, $ Merl, $ IO, etc.
C. Flowtraders, established in 2004, was established in the Netherlands. It focuses on the global digital liquidity provider of ETP of exchanges trading products. It is one of the EU’s largest ETF trading companies. Based on Bitcoin and Ethereum, a exchange certificate has been established.Carry out cryptocurrency ETN trading business.
D. Auros Global, implicated by FTX, applied for bankruptcy protection in the Virgin Islands in 23 years, and $ 20 million in assets was stranded on FTX, and the news of reorganization was revealed.
E. GSR Markets, founded in the UK in 2013, is a global encrypted as a city merchant with a mature global investor in the digital asset industry with liquidity, risk management strategies, programmatic execution and structured products.
4. DWF Luo Shengmen incident
DWF Labs is the hottest “net red” as a city merchant in the market recently.DWF’s Russian partner Andrei Grachev established DWF in Singapore in 2022.According to reports, the company now claims that a total of 470 projects have been invested, and cooperation with about 35% of the top 1,000 tokens in its short 16 -month history has launched cooperation.
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(Binance Pledged to Thwart Suspicious Trading-Until It Involved A Lamborghini-LOVING High Roller))
Let’s review this incident:
4.1
The Wall Street Journal broke the news on May 9 that an anonymous source who claimed to be a former Binance insider said the Binance investigator discovered a false transaction of DWF Labs worth $ 300 million in 2023.A person who is familiar with the situation of the operation of the Anti -Laoshan also said that Binance did not ask the city business to sign any specific agreement to manage its transactions (including any specific agreement such as market control to regulate its transaction behavior).
This means that to a large extent, Binance allows city merchants to trade according to their own wishes.
4.2 DWF marketing
According to a proposal document sent to potential customers in 2022, DWF Labs did not adopt the price of price in price, but proposed to use its active transaction positionCreate the so -called “human trading volume” to attract other traders.
In the report for a customer of a token project that year, DWF Labs even directly wrote that the agency successfully produced two -thirds of the number of artificial transactions equivalent to the token, and was working hard to create a “credible”If the transaction mode (Believable Trading Pattern “, if you cooperate with DWF Labs, you can bring” bullish sentiment “to the project tokens.
4.3 Binance’s response
A spokesman for the Binance stated that all users on the platform must comply with the general use clauses for the prohibition of market control.
One week after submitting the DWF report, Binance fired the person in charge of the monitoring team and cut off several investigators in the next few months. One of the Binance executives attributed this to cost savings.measure.
He Yi, the co -founder of Binance, said: Binance has been monitoring the market as a market business, and it is very strict; there is competition between the market businessmen, the means are dark, and they will attack each other through PR.
4.4 Possible reasons
On the Binance platform, DWF is the highest “VIP 9” level, which means that DWF contributes at least $ 4 billion in transactions to Binance monthly.And similar to a symbiotic relationship between the market business and the exchange, Binance has no reason to offend one of the largest customers for an internal investigator.
Fifth, encrypted the main operating mode of city merchants
Like the traditional marketor, encrypted market merchants also profit through the spread of buying and selling.They set up low buying prices, selling high prices, and obtaining differences in the difference. This difference is usually called “Spread”, which is the basis for the most profitable profit of city merchants.
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After understanding this foundation, let’s take a look at the two main business models of the project party for the project party.
5.1 Subscribey service + transaction commission (Retainer + Performance Fee)
In this model, the project party provides tokens and corresponding stablecoin in order to be a city merchant, and the use of these assets to use these assets to provide liquidity for the CEX order book and DEX pool.The project party sets KPI according to its own needs. For example, how much price spread can be accepted, and the liquidity and depth of the market need to ensure how much market liquidity and depth (DEPTH) and so on.
A. The project party may first give a fixed Setup Fees as a city merchant as the launch of the city project.
B. After that, the project party needs to pay a fixed monthly/quarterly subscription service fee for the city merchants.The most basic subscription service cost is usually from $ 2,000 per month. The high on the high depends on the scope of service and is not capped.For example, GSR MARKETS, charge a $ 100,000 settings (Setup Fee), $ 20,000 subscription fees/month, plus $ 1 million BTC and ETH loans.
C. Of course, some project parties will also pay KPI-Based transaction commission fees to motivate city merchants to maximize profits (the incentives obtained by the market merchants successfully completed the KPI target in the market).
These KPI indicators may include: transaction volume (will involve illegal Wash Trading), token prices, SPREAD, market depth, etc.
In this model, the market thinking is more clear and transparent, and it is easier for the project party to control it. It is more suitable for the mature project parties who have built liquidity pools in various markets and have clear goals.
5.2 Job borrowing + bullish options(Loan/Options Model)
At present, the most widely used market business model in the market is: token loan+ call option.This model is particularly suitable for the early currency project party.
Due to the limited funds of the project party in the early days of the Shanghai currency, it is difficult to pay for the market expenses, and there are fewer token in the market in the early days of the project.Essence
In this case, it is more suitable to set KPIs by themselves according to the project situation. In order to compensate for the city merchants, the project party usually embeds the call option in the market contract to give it to the marketor to be a city merchant to act as a generation to behave to be a generation generation to behave.Hedge of currency price risk.
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In this model, the Municipal Chamber of Commerce borrows token loan from the project party to invest in the market to ensure liquidity and stable currency prices. Generally, it agreed to make a market term for 1-2 years.
Seeing that the bullish period stipulates that before the contract expires, the city merchants can choose to buy tokens borrowed from the project party at the predetermined price at the predetermined price.It should be noted that this option is an right to give a choice to the city, not the Option Not Oblction.
The value of this options is related to the direct correlation of the tokens, which gives the market as a motivation to increase the value of the tokens.Let’s simulate a scene:
We assume that the MFERS project has found a city merchant and signed the Call Option. It agreed to borrow 100,000 tokens with a license price of $ 1 and a period of 1 year.So during this period, there are two options for market vendors: 1) 100,000 MFER tokens due;
If the price of the tokens has risen from 100x to $ 100 (yes, MFERS to the Moon), a city merchant can choose to execute options, that is, to buy tokens worth $ 10,000,000 at a price of $ 100,000, to obtain 100 times the income; if the token priceFalling 50% to $ 0.5, the marketing merchants can choose not to execute options ($ 100,000), but instead purchase 100,000 tokens on the market at a price of $ 0.5 to repay the loan (the value is half $ 50,000 for the value of the exercise).
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Because of the existence of optional rights, it will lead to the motivation to be crazy for market merchants to increase the profit of shipments. At the same time, there is also the motivation for crazy smashing and low -cost purchases.
Therefore, under the tokens borrowing + Loan/Options Model mode, the project party may need to treat the marketor as a trading opponent. Special attention:
A. How much does the city merchant get the rights price and the number of tokens borrowings, which determines the profit space of the city merchants and the expectations of the market;
B. Also pay attention to the period of this duration of the bullish period (Loan Period), which determines the city space of this time dimension;
C. The termination of the termination of the market contract, in case the risk control processing method in the emergency situation.Especially after the project party borrowed the tokens to the city, it was impossible to control the tokens.
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(PaperClip Partners, Founder ’s Field Guide to Token Market Making)
5.3 Other business model
We can also see that many city merchants have the first -level investment departments that can better serve the project through investment and incubation, provide services such as fund raising, project announcement, and listing of money.It also helps to reach potential customers to reach potential customers (investment and loan linkage?).
OTC Overseas transactions are the same, buying tokens from the project party/foundation’s low prices, and appreciate the value of tokens through a series of market operations.There are more gray spaces here.
six,Risk and supervision
After understanding the operating model of the encryption as a market businessman, we know that aside from the positive significance of being a market business in the encryption market, they are not only cutting leeks, but also the project party is also the object of “being cut into leeks”.EssenceTherefore, the project party particularly needs to grasp the risk of cooperation with the encryption and the obstacles that may cause supervision.
6.1 Supervision
In the past, the supervision of the marketing merchants was concentrated in the “securities” as a city merchant, and the definition of encrypted assets has not yet been clarified, so it has caused relative regulatory gaps for encrypted cities and market behaviors.
Therefore, for the encryption as a market businessman, the current market environment is a situation where the sky is high, and the cost of making evil is extremely low.reason.
We see that supervision is constantly standardized. For example, the US SEC is clearing the definition of Broker & amp; Dealer through regulatory law enforcement.Applying for regulatory licenses, such as GSR Markets applied to the Singapore Financial Administration for the main payment institution license (OTC and market services allowed to carry out OTC and market services within the regulatory framework of Singapore).
However, the supervision of the major jurisdictions does not prevent some encrypted offshore operations of the encryption, because they are essentially large capital accounts in various exchanges, and most of them do not exist on shore business.
Fortunately, due to the FTX incident and the continuous standardization of major exchanges such as Binance and Coinbase, the encryption of the exchange on the exchange will also be limited by the rules of the internal control compliance of the exchange, making the industry more standardized.
We do need to regulate these non -moral/illegal behaviors, but before the industry broke out, we may need the industry to embrace the bubble.
6.2 Risk
Due to the lack of supervision, the encryption market will have motivation for immoral transactions and manipulation markets to obtain the maximum profits, rather than the motivation to create a healthy market or trading environment.This is why they are notorious, and they also bring many risks.
A. Market risk of being a market businessman
As a market businessman, it will also face market risks and liquidity risks, especially under extreme markets.Earlier, the collapse of Terra Luna and the chain reaction caused by the collapse of the FTX caused a comprehensive defeat of the city merchants, leveraged collapse and market liquidity. Among them, Alameda Research was a typical representative.
B. The project party lacks control of borrowing tokens
In the model of token borrowing, the project party lacks control of borrowing tokens. I don’t know what to do to do the tokens of the project party to do it. This may be anything.
Therefore, when borrowing tokens, the project party needs to be imagined to be a trading opponent, not a partner to conceive the possible situations that may occur due to price effects.Malter can achieve many purposes by adjusting the price, such as may set a lower price for the new contract by intentional suppression; it is also possible to vote through anonymous voting, through favorable proposals, and so on.
C. The immoral behavior of being a city merchant
Into the municipal chamber of commerce manipulates the price of tokens, exaggerate the transaction volume through the launch of transactions, and raise and sell.
Many cryptocurrency projects hire municipal merchants to use the use of carriers and selling transactions to improve performance indicators. Loading and sale transactions refer to the illusion that entities repeatedly trades the same assets to create transactions.In the traditional market, this is an illegal market manipulation, misleading investors’ demand for specific assets.
Bitwise published a well -known report in 2019, saying that 95% of the transaction volume of 95% of the exchanges that are not regulated is fake.A new study in December 2022 of the National Economic Research Agency (NBER) found that this number has dropped to about 70%.
D. The project party of the back pot
Because the project party lacks control of tokens and it is difficult to restrict the immoral behavior of being a city merchant, or they do not know these immoral behaviors, once these behaviors fall into the regulatory vision, the project party of the actual operating project is difficult to quit.blame.Therefore, the project party needs to work hard on the contract terms or emergency measures.
Seven, write at the end
Through this article, it can help the project party to clearly encrypted the city merchants through providing liquidity to ensure efficient transaction execution, enhance investor confidence, make the market’s operation smoother, stabilize currency prices and reduce transaction costs.
However, by revealing the business model of encryption as a city merchant, the many risks caused by the project party and encryption to cooperate with the city business needs to pay special attention to the terms of negotiations with the city merchants and cooperate.
