The Hermit Crossing Bull and Bear Cycles: Encryption Market Makers

The market makers in the encryption market are essentially not much different from traditional finance. However, there are significant differences in operation models, technology, risk management, and regulation. Firstly, the scale of the encryption market is relatively small, and the size of market makers is also smaller. Secondly, the liquidity in the encryption market is lower and the volatility is larger, requiring market makers to manage risks more cautiously. In addition, the trading process in the encryption market is difficult to regulate and lacks strict constraints on market maker systems. Finally, the encryption industry has higher requirements for technical capabilities, as it needs to ensure the security of transactions.

1. The Development History of Encryption Market Makers

The development of encryption market makers can be divided into three stages:

1. Initial period (2009-2012: With the birth of Bitcoin, the first batch of encryption trading platforms and market makers emerged, mainly composed of individuals and small teams.

2. Development Period ) 2013-2017: With the market maturing, institutions began to pay attention and intervene, and some professional market makers emerged, such as Cumberland Mining and Jump Trading.

3. Period of Great Changes ( From 2018 to Present ): The market crash in 2018 led to the bankruptcy of many trading platforms and market makers, but it also brought opportunities and reshuffling. Market maker services and models are continuously optimized and upgraded, and some traditional financial companies have also begun to enter the encryption market.

2. The operation model of encryption market makers

Encryption market makers mainly operate through the following methods:

• Trade on multiple trading platforms, connecting via API interface.
• Use self-owned funds and algorithm models to provide quotes
• Provide over-the-counter trading services
• Real-time adjustment of market strategies, including trading scale, price range, and hedging risks, etc.

The specific process includes: selecting currency pairs, pricing, matching transactions, risk management, settlement, and clearing.

3. The Technical Barriers of Encryption Market Makers

Key technologies that encryption market makers need to master include:

• Blockchain technology
• Asset security technology ( multi-signature, cold wallet storage, etc. )
• Trading Platform API
• Data analysis and machine learning
• Quantitative Trading Technology
• Social media and online marketing

4. The Profit Model of Encryption Market Makers

The main profit model includes:

• Profit from the price difference of buying and selling transactions.
• Collaborate with project parties to provide market-making services
• Assist the trading platform in maintaining liquidity and trading volume
• Participate in Token liquidity mining
• Obtain market-making rewards and rebates provided by the trading platform

5. Risks Faced by Encryption Market Makers

The main risks include:

• Price risk: High market volatility may lead to losses.
• Liquidity risk: It is difficult to provide sufficient liquidity in a timely manner.
• Counterparty risk: inability to determine the credit status of the counterparty.
• Funding risk: The scale of funds and the efficiency of circulation determine the level of market making.
• On-chain risks: smart contract vulnerabilities, public chain forks, etc.
• Regulatory risk: Uncertainty of regulatory policies

6. The Future Development Trends of Encryption Market Makers

• Strengthen risk management
• Develop a more intelligent trading system
• Continuously enhance liquidity provision capabilities
• Explore new business models
• Actively try on-chain protocol market making
• Market making in emerging fields such as NFTs

7. Investment Direction Consideration

• Centralized small market maker strategies or service projects
• Cross-chain middleware to solve interoperability issues
• CeDeFi project: combines the advantages of CeFi and DeFi

Overall, encryption market makers play an important role in the market, have huge potential for future development, but also face many challenges, requiring continuous innovation and adaptation to market changes.