Will Decentralized market making dominate the original centralized market makers?
Posted On April 14, 2022
Market makers stay behind the success of some of the very successful unicorns and virtually all cryptocurrency related projects. Market makers’ main focus is to maintain liquidity, depth, and spread among markets in order to provide buyers and sellers with the best possible chance to trade a certain financial product or an asset.
Now, let’s have a deeper look at how market makers work and how they make profit:
Let’s utilize the exemplory case of a brand new project called Mango Finance. Mango Finance just finished their ICO(Initial Coin Offering) and their token is currently tradable on the DEX (Decentralized Exchange) Pancakeswap.
In order to create healthy volume and a price action, Mango Finance hired a market maker firm. The market maker creates volume and the firm also sells Mango Finance tokens in order to generate a healthier income for itself. However, Mango Finance pays this market maker over $6,000 each month and pays 3% of most tokens sold, which is a hefty price. Furthermore how market making works, Mango Finance is completely influenced by the availability of this market maker. Mango Finance also wants to make use of this market maker to offer the tokens of their private investors. With this industry maker is charging additional monthly fees.
Mango Finance is losing control over its markets, its private sale investors, and is paying hefty monthly fees for it.
As you can see from the aforementioned example, automated market makers have been a good help to crypto startups, but their services may become quite costly. For this reason firms have been searching for market making alternatives and Avatea aims to help unicorns and startups with exactly just that.
Mango Finance now turns to the Avatea protocol. Selecting a decentralized market making bot. By connecting to the platform different market making algorithms become available which may be activated by staking their native token and a combined token such as for instance BUSD or BNB. Mango Finance is currently able to manage their market making activities completely by themselves, choosing and changing the required volume, price action, and buy/sell orders whenever they want 24/7.
Mango Finance now pays a minimal fee to the protocol, this fee is employed to purchase back the native Avatea token.
You can find out about the Avatea protocol and how it works here.