Market maker Kairon Labs has been working with projects like StepApp (FitFi) and Ergo to provide liquidity to over 30 exchanges.
Kairon Labs and most other market makers agree that “a liquid market is a healthy market” because when the market is liquid, it allows for lower slippage and faster transactions to occur, allowing for fair trading of tokens.
Cointelegraph commented with managing partner Jens Willemen on current market conditions and briefly explained how market makers can remain profitable in the current bearish market conditions.
Cointelegraph: What is a market maker?
Jens Willemen: I would say a market maker is someone trying to create a healthy market where participants can find each other more easily.
Whether you want to buy or sell, you should always be able to do it at the current market price without much slippage, which means price impact.
Having market makers in either asset class should be a net positive. This should be the goal. It shouldn’t be a value extraction.
CT: How do market makers make money?
JW: Whenever you buy or sell, there is always a difference between the two and between bid and ask. This is where we make money. Market makers make profits between these prices.
CT: How has Kairon Labs performed over the past few months?
JW: The crypto market has been struggling for the past few months. On our side, we are in a good position. As market makers, we should stay as neutral as possible, but in many cases we have a tendency to be short over the past few months.
So for us it’s actually the most profitable three months ever, more profitable than the bull market, even in terms of trading PNL [profit and loss], so it’s been fine. We kind of expected this crypto winter to happen, but not as tough as it used to be, as we even saw Bitcoin (BTC) drop to $17,000. However, in the past few days, it has started to get better again. We expect this negative trend to continue for some time, as the market will weed out all the smaller projects and all those with lesser intentions.
Once that happens, we are sure the market will recover again and we will see new highs at some point. We are sure of that.
CT: How did Kairon Labs start market making?
JW: At first, it was just Kairon labs co-founder Mathias and myself. Mathias is our Head of Transactions and CTO, and I am in charge of the operations and business parts. Basically, we are seeing very high demand for liquidity from altcoins with smaller market caps.
Mathias used to be an enterprise architect for one of the largest banks in Belgium. He is highly technical and has a strong trading background. So he developed the first very simple algorithm, a very simple trading bot, to provide liquidity. And, I found our first client, we connected to the first exchange and started trading.
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Quite simply, we started 2019 without any investors. It’s like what we just did and grew from there. Very organic. We’ve never had any outside investments over the years, so we’ve really just grown organically to the team of 20 we have today, and we’re currently doing about 32 different exchanges for over 60 different token projects city.
CT: Is the market maker just running a trading bot?
JW: Most market makers have custom trading strategies for specific trading pairs (e.g. Ether (ETH)/Bitcoin); other trading pairs have less volume and require different strategies to control margins. Trading bots are the main component, but there are more moving parts when running real market making operations.
CT: Is market making pure whitewashing?
JW: Market making is not shuffle trading because shuffle trading is trading between yourself to create fake volume.
Market making encourages organic growth by providing the necessary liquidity for your trades, ensuring there are always buyers and sellers.
CT: Do market makers influence the market?
JW: Market makers don’t influence financial markets, they just provide liquidity for traders to trade in and out, which may help with price discovery.
CT: How much do market makers charge?
JW: Our business model at Kairon is similar to other market makers in that we combine monthly flat fees and profit distribution. So that means we are always, in any type of market, earning a minimum guaranteed amount for the company at least every month, which means we can guarantee that we continue to pay everyone and we can continue to operate.
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That is, I think, our greatest strength when these adverse market conditions occur. Then we set aside a lot of money as a back-up because we know that cryptocurrencies can be very volatile, so everything is not dependent on the market. So we’re well prepared, we’re well capitalized, and the business model supports us in crypto winter, like we’re going through right now.
Crypto winter is a term used to describe what happens when cryptocurrency markets fall for an extended period of time. It’s hard to predict how long the crypto winter will last, but what we do know is that the cryptocurrency has recovered from the worst.