MEXICO – If a start-up hopes to toss a chip without getting in the way at first, there is one important thing to do: engage a market maker.
This was the message of a panel Monday at the Stellar's Meridian conference in Mexico City.
"Market makers provide this initial step where you can start trading," said Sergey Yusupov, founder of the infrastructure startup Stellar Apay.
Thomas Scaria, a recent friend of the Wyre payment company who is currently working on a stealth mode start-up, described the market makers with a metaphor: he says adding:
"They are a bit of a beginner to the party."
The market is very widespread but generally discussed in a low voice in the crypto space.
When Blockstack disclosed in a document filed last month with the US Securities and Exchange Commission (SEC) that it had entrusted GSR Markets with providing liquidity for its STX token, it has become one of the few startups to recognize publicly this practice.
"Crypto is moving towards a seamless relationship with market makers," said Blockstack CEO Muneeb Ali later. on Twitter.
Not to be confused with the sector of false volumes, say industry insiders, market makers are a major asset on any mature financial market. They have settled in very liquid markets, offering to always buy at a given price and sell at a slightly higher price. They realize profits on this gap and target volumes that make the business profitable. While other buyers and sellers can also participate, market makers help reduce spreads on both sides of the order book.
For a price
However, to participate in a market, a market maker needs a large amount of assets for his seller side – and he will not take that risk alone for a new asset without proven demand. That's why Monday's panelists argued that startups should cover the cost of this risk.
"Get out your checkbook," says Scaria.
Scott Freeman, of market maker JST Capital, said that when his company recruited a new client, she liked to consult before starting.
"We approach this really as a partnership," he said, explaining that it was important for his team to understand the startup community, the product it markets, and the expectations of the founders.
Freeman also encourages symbolic projects to think that market creation is more than price support. If users need a token to use a product, it must be easy to obtain and therefore requires liquidity.
"Consider this as a marketing expense to a certain extent," he warned. "This is the first piece of a very complex puzzle."
And just like marketing, the market maker can not do anything against a fundamentally bad product. Said Freeman:
"If people look at your project and do not believe it, they will not buy your token."
Panel Image: (left to right) Ian McAfee, CEO of Shift Markets, Sergey Yusupov, founder of Apay, and Thomas Scaria, former Wyre. Photo by Brady Dale for CoinDesk