Do you know why many successful ICO projects fail? The reason behind the failure is the lack of token liquidity. Even if you are successful in selling the tokens and raising funds, you need to make sure the tokens gain traction. And it can only happen if there is liquidity in the market for your tokens.
This doesn’t happen naturally as ICO tokens lack liquidity. You have to take some extra steps and put in extra effort to generate liquidity in order to gain traction for your token.
Most ICO project owners appoint market makers for this process. You can approach various companies for ICO Development Services. They will help you in selecting good market makers for your project.
Do you know who market makers are? If yes, you might know how important a role they play in creating liquidity in the market. If no, we can guide you. In this post, we will discuss about market making and show you how it will help you gain traction for your ICO token. So let’s begin.
What is Market Making?
Market making is a process in which the company hires market makers to create liquidity for their tokens in the crypto market. They create liquidity by trading the tokens in the market. They create a tight spread to increase liquidity. In this process, the market makers will buy a token at a lower price and sell at a slightly higher price to maintain spread. Spread = Ask price (selling price) – Bid price (buying price). The disparity betwixt the bid price and the asking price is the spread. Liquidity increases when the spread is tight, i.e., less difference. The market makers earn a profit on the spread.
Market makers are the ones who are involved in the market making process. There are many professional market makers who help to increase the token liquidity in the market. They will make a market for your token to perform. You can choose a good market maker for your ICO token. They usually charge fees for their service. Although they are involved in buying and selling tokens, they are not investors.
Example of Market Making:
Mr. A launched an ICO and appointed Market Makers B to create liquidity for the token. The current rate of the token is 50. Now the market maker B will quote a bid price of 45 and ask price of 55 for the same token. They will but the token for 45 and sell it for 55, thereby making a profit of 10. The spread will be 10.
They will continue this way to increase the liquidity by the tight spread. When the spread is tight, the volume of trade will increase, creating more liquidity and making the token a hit in the market.
How is Market Making important to gain traction for the token?
Here we will show you how market-making helps to solve your ICO token’s liquidity issues and helps it to gain traction. Here are the benefits of market-making.
- Increased Liquidity:
As we have discussed above, the main advantage of market making is increased liquidity of token. If you appoint market makers, they will provide the token liquidity to the investors. This will help you gain more investors and increase more liquidity for your token in the market.
