Are you ready to invest your time in an STO project? Do you have a game plan for its launch and traction? Before launching your STO, you must know how a security token offering can gain traction. This article will help you know how can be possible with the help of market-marking. Let’s get started!
Understanding the Concept of Market-Making
Nowadays, you can find many market makers that often brokerage houses providing trading services for investors with the aim of keeping financial markets liquid. Speaking of liquidity, it describes the easiness with which security or asset can be quickly bought or sold in the market without affecting its market price. The most liquid asset of the market is cash universally since it is quickly converted into other assets.
Since market-making contributes the most in ensuring there is enough liquidity in the markets, it is quite evident that without market makers, there will be a little liquidity, and investors who want to sell securities will be unable to gain profits due to the lack of potential buyers in the market.
Therefore, market makers keep market well-going.
Without market makers, the transactions may be insufficient, and overall investment activities will be less. Hence, your token may not be able to gain traction.
How Does Market-Making Work?
The market marking indicates a keenness to buy and sell the assets or securities of a definite set of companies to broker-dealer firms that are member firms of that exchange. Every market maker showcases buy and sell quotations for a defined number of shares. Once a buyer receives the order, the market maker sells off his shares’ position from his inventory, in order to complete the order. In other words, market-making allows a seamless flow of financial markets by easing out the buying and selling for investors.
Moreover, a market maker should be responsible for quoting prices for buying (biding for) and selling (asking for) securities. They are also responsible for quoting the volume in which they want to buy and sell, and also the frequency of time it will quote at the best offer prices and best bid.
Market making can help to attract new investors as well as experienced traders. It can decrease the expenses of both traders and investors. Allowing the better conditions for listing on new exchanges, Marker making also facilitates seamless selling of unsold tokens. Even if you are thinking of advancing the position of security token in the listing of exchange you have chosen, then choosing market making can be a great idea for you.
How Market Makings can help In Gaining Traction for Your Token?
In 2019, the US market was facing an issue of lack of liquidity in their stocks across 13 exchanges and other 40 execution venues. The massively decreasing cost of operating and launching online order crossing systems has resulted in a sudden increase of decentralized pools of liquidity and price breakthrough in securities listed outside of the most renowned 100 traded names. Such a fragmented trading situation created a thin layer of liquidity that was easy to rupture.
Understanding why this happened is important for the crypto domain. The power to permanently send some blockchain assets to anyone, without any permission, simply indicates the beginning of a global crypto exchange. All you need is to get a server and marketing shove. This is no surprise that CoinMarketCap lists around 234 exchanges and top exchange only has 5% of the market share of everyday volume. Listing an illiquid asset on trading venues without dedicated market making is a sure shot recipe of disaster.
Now, let’s discuss how market making will help in the traction for your tokens.
By Reducing Friction
Nowadays, Cryptocurrency is suffering from a lack of efficiency. This creates many challenges for traders to participate in, where friction (direct and indirect costs of transacting) is higher. Consequently, token issuers will suffer, since they will be needing a seller if someone is willing to buy, and the buyer if, willing to sell. In crypto-world, this can’t be the usual case, especially for less famous tokens.
With market making, you can reduce the friction for people willing to participate in the crypto-market, providing cost-effective and well-managed entry points for aspired traders.
