【Crypto Chat】Legitimate and Fake Crypto Market Makers: What Makes Market Making Legal?
Written by Ekko An and Ryan Yoon; translated by Chopper, Foresight News
Crypto veterans, have you ever been burned by this kind of scheme? A new token launches and its price shoots up like a rocket, only to crash spectacularly soon after, with trading volume seemingly evaporating overnight. Whenever this happens, people are quick to blame the market makers, convinced they’re up to something behind the scenes.
But market makers are getting a bit of an unfair share of the blame. The real problem is that a bunch of scammers have infiltrated the market, calling themselves market makers while engaging in market manipulation. They take the money, dump the tokens, and run—nothing like legitimate market makers. The U.S. Federal Bureau of Investigation (FBI) has previously charged several firms that offered “manipulation services.” There have been similar cases in South Korea, where a team used the pretext of providing liquidity to inflate trading volumes; those involved have since been jailed.
Since the industry currently has no clear licensing requirements, anyone can slap the “market maker” label on themselves, dragging down the reputation of the entire sector.
In all seriousness, markets do need market makers. They post buy and sell orders at the same time, continuously adding liquidity to the order book so that trading can proceed smoothly. Put simply, market makers are like currency exchange counters at an airport: they make sure people can buy or sell whenever they need to, without having to wait around for someone to take the other side.
For everyday investors, market makers can lower trading costs—not just obvious costs like fees, but also hidden ones such as slippage, price movements caused by large trades, and price discrepancies between exchanges.
Of course, enjoy the spectacle if you like, but set FOMO aside for now.
Written by Ekko An and Ryan Yoon; translated by Chopper, Foresight News
Crypto veterans, have you ever been burned by this kind of scheme? A new token launches and its price shoots up like a rocket, only to crash spectacularly soon after, with trading volume seemingly evaporating overnight. Whenever this happens, people are quick to blame the market makers, convinced they’re up to something behind the scenes.
But market makers are getting a bit of an unfair share of the blame. The real problem is that a bunch of scammers have infiltrated the market, calling themselves market makers while engaging in market manipulation. They take the money, dump the tokens, and run—nothing like legitimate market makers. The U.S. Federal Bureau of Investigation (FBI) has previously charged several firms that offered “manipulation services.” There have been similar cases in South Korea, where a team used the pretext of providing liquidity to inflate trading volumes; those involved have since been jailed.
Since the industry currently has no clear licensing requirements, anyone can slap the “market maker” label on themselves, dragging down the reputation of the entire sector.
In all seriousness, markets do need market makers. They post buy and sell orders at the same time, continuously adding liquidity to the order book so that trading can proceed smoothly. Put simply, market makers are like currency exchange counters at an airport: they make sure people can buy or sell whenever they need to, without having to wait around for someone to take the other side.
For everyday investors, market makers can lower trading costs—not just obvious costs like fees, but also hidden ones such as slippage, price movements caused by large trades, and price discrepancies between exchanges.
Of course, enjoy the spectacle if you like, but set FOMO aside for now.
