MEXICO CITY — If a startup hopes to release a token without embarrassing itself in the early days, there is one important thing it should do: hire a market maker.
That was the message from a panel Monday at Stellar’s Meridian conference in Mexico City.
“Market makers provide this initial step where you can start trading,” said Sergey Yusupov, the founder of Stellar infrastructure startup Apay.
Thomas Scaria, a recent alum of payments firm Wyre and who’s now working on a stealth-mode ethereum startup, described market makers with a metaphor: “You want your cool friends to show up early to the party so it looks like something is happening,” he said, adding:
“They are kinda the party starters.”
Market making is widespread but generally discussed in hushed tones in the crypto space.
When Blockstack disclosed in a filing with the U.S. Securities and Exchange Commission (SEC) last month that it contracted GSR Markets to provide liquidity for its STX token, it became one of the few startups to publicly acknowledge the practice.
“Crypto matures towards transparent relationship with market makers,” Blockstack CEO Muneeb Ali said later on Twitter.
Not to be confused with the fake volume industry, industry insiders say, market makers are a fixture in any mature financial market. They set up shop in very liquid markets, offering to always buy at a given price and sell at a slightly higher price. They make profits on that spread and aim for volumes that make the business worthwhile. While other buyers and sellers can also participate, market makers help to smooth out any gaps on either side of the order book.