With Market Maker Program, CoinEx Seizes the First-mover Advantage in the Battle for Market Makers
It’s widely known that Uniswap follows the XYK model in its yield farming, which uses the equation of x*y=k, to provide automated market making (AMM), while other DeFi projects rely on LPs’ staking for market-making profits, without which investors cannot enjoy stable income — sometimes they make money, sometimes they lose, and can even lose their principal due to the impermanent loss of market making. Meanwhile, investors need to pay attention to their exchange funds when performing currency swaps: the quotation won’t be so favorable for large funds. So how to provide investors with good quotations has become the priority of centralized exchanges. Hence the emergence of market makers.
Why centralized exchanges need market makers
The entrance of deep-pocketed investors could cause drastic changes in currency prices (which is also known as “long wick candles”). To prevent that and ensure successful transactions of large amounts, centralized exchanges need to introduce market makers to inject liquidity to provide a good trading experience for users. In return, preferential trading policies are also offered by exchanges for market makers to join and obtain profits.
In this way, it’s win-win cooperation between market makers and exchanges: ordinary investors avoid losses caused by market spreads with good trading quotations, and the reputation of exchanges will be enhanced as a result. Therefore, introducing a market maker program is now the best option, which is precisely why exchanges are now all eyes on market markers.
Advantages and the profit model of market makers
The responsibility of market makers is to narrow the price gap between trading pairs by continuously placing buy and sell orders on the exchange, and to provide some liquidity for trading pairs to prevent incidents like long wick candles. That is, to continuously buy and sell the currency of trading pairs to keep the currency prices of one exchange consistent with others or within a certain range of deviation.
Market makers gain profit in four ways:
1. The difference between the prices that different exchanges set for the same trading pair or the price gap between different trading pairs on the same exchange. Market makers are equivalent to professional middlemen. For example, when the currency price in Exchange A is lower than that in Exchange B, market makers can buy the currency from Exchange A and then sell it on Exchange B to earn money. When there is a difference between the Currency A to USDT rate and the Currency A to BTC rate, market makers can buy and sell to pocket the difference too.
2. The bid-ask spread for the same trading pair on the same exchange. For example, market makers can place a buy order and a sell order at the same time, and, as customers buy and sell on the market, the market maker can earn the spread.
These two kinds of price gaps exist all the time. Ordinary investors don’t stand a chance because of high transaction fees, while market makers, who only need to pay a low commission, are motivated to make the money, which adds up to a lot.
3. Rewards or preferential policies from the exchange when market makers complete certain tasks. These vary across exchanges.
As we can see, the price difference is a major source of profit for market making. The largest influence factor in this is the transaction fee. For this reason, exchanges have provided preferential commissions for market makers. Such charges well below the market average are why market makers can earn more.
4. Market makers for certain currencies cooperate with the developers, who fund the market making. This can facilitate the liquidity and market performance of the currency, and make it listed on more excellent exchanges, which is what developers are glad to see.
To become a market maker requires certain qualifications. As an institution to keep the currency price stable with large funds, market makers should at least have sufficient funds and a complete market-making strategy. The strategy is basically an automated market making procedure, which keeps the price from volatile fluctuations all the time and thus avoids the risk of long wick candles and liquidation.
How CoinEx Started the Market Maker Battle in the Bull Run
A market maker can create accounts on several exchanges at the same time, which is to expand the possibility of profit and make more money. CoinEx also welcomes market makers who operate on other exchanges. They can apply for CoinEx’s market maker program and earn the extra bucks.
Most exchanges including OKEx, Huobi, Binance, CoinEx, etc. have a complete market maker program. In the current bull run, other exchanges practically sustain previous market maker programs. By contrast, CoinEx is the first to update the market maker program by introducing more preferential policies, as it strives to attract excellent market makers. In other words, CoinEx has officially started the battle for market makers.
In comparison with other exchanges, CoinEx has the following advantages:
1. The lowest transaction fee and the highest commission ratio
The most important expenditure of a market maker is the fees charged for market-making transactions. Thus, the lower the transaction fee, the higher the profit for the market maker. Compared to its counterparts, CoinEx has offered a lower market maker fee discount, -0.015% for perpetual market making and even 0.000% for spot market making. With that, it allows market makers to have more opportunities in market making to earn more profits because of lower transaction fees, higher commission ratios, and more investment options.
2. Minimum application requirements
The application requirements are a rigid threshold for users to participate in market making. It is stipulated in CoinEx’s market maker program that as long as an applicant is familiar with trading strategies and has a monthly trading volume of $10 million (about 230 BTC), whether it is an individual, an institution, or an exchange, it can apply to become a market maker.
3. Technical strength ensures asset security
CoinEx provides users with a full range of transaction data and API services featuring low latency and fast transaction processing, which ensure system security, stability, and professionalism for its traders, investors, and market makers. In addition, it charges the lowest margin in the industry, avoids the possibility of premature liquidation or tampering with the candlestick chart, and ensures a 100% risk margin indemnity mechanism. All these measures have reduced the market risk that market makers and investors may face in extreme market conditions to the lowest level.
Comparison of market maker assessment and discounts in different exchanges
Exchanges have different discounts, assessment criteria, and application requirements for market makers. The following table offers a comparison among several exchanges. Market makers can consult the customer service staff of each exchange for more details.
As can be seen in the table, the exchanges set roughly similar requirements for market maker application, mainly including the user’s capital volume and market making performance, with the related experience being essential. It’s noteworthy that CoinEx requires a lower monthly trading volume of an applicant and does not set any threshold for spot assets in the applicant’s CoinEx account. That is to say, market makers can withdraw funds for other purposes at any time without affecting the market-making qualification review, which allows a more liquid cash flow.
The market maker assessment is generally subject to market-making specifics, which mainly include the trading volume, bid-ask spread, and the amount of orders. Of course, these standards may vary with time. Some exchanges, including ZB, Huobi, and Binance, set a higher threshold for market maker applicants, while CoinEx put forward a three-month “probation period” for applicants. With that, sufficient preparation time is reserved for applicants, which also relaxes the review standards. In this regard, as Huobi disqualifies those in the last place, such a tough assessment puts applicants at a disadvantage.
Last but not the least, privileges are actually what market makers are most concerned about, and they vary among exchanges. Unlike Binance, Huobi, and ZB with flexible privileges, CoinEx offers market makers a low transaction fee, part of which can also be paid with CET, and VIP levels corresponding to various tiers of discounts in transaction fees.
The bull market comes with active crypto trading activities. Unfortunately, Huobi, OKEx, and Binance do not value the role of market makers, and that is a good opportunity for CoinEx, which is committed to delivering the best trading services, to take the lead in offering market maker incentives. These efforts also show from the side CoinEx’s keen insights into market trends and quick response to market changes.