What Is Market Making as a Service?
Market Making as a Service (MMaaS) is a technology service that enables token issuers to set their market-making strategies, allowing them to trade and manage their liquidity.
Traditional market makers provide liquidity with a mix of tokens loaned from the projects’ and their funds to create trading pairs.
They do market-making on their terms and retain the profits from these activities.
With MMaaS, token projects use their tokens and funds to provide liquidity with the MMaaS technology.
Projects get control of the strategies and the potential rewards from the market-making activity in exchange for a retainer to use the technology.
How Does MMaaS Work?
After setting the terms of market-making, the token issuer creates an account on a selected centralized exchange, funds it, and connects the API keys to the market-making infrastructure and algorithms with custom permissions to allow the trading.
Token projects can adjust their market-making strategies on the platform or send instructions to the MMaaS provider.
Why Is MMaaS a Needed Alternative to Traditional Market Makers?
Market Making as a Service was developed to address the traditional market-making model’s drawbacks, improve market liquidity, and give power and control back to token issuers.
Legacy market makers are incentivized to generate profits for themselves, which can mean working against their client‘s best interests.
Some of the ways these market-making strategies are implemented can harm the project’s tokens.
Enhancing Transparency and Trustworthiness
Token issuers who utilize traditional market makers are liable for the many risks with crypto.
Their token, and ultimately their project, are potentially at risk when they blindly trust a market maker and hope they adhere to good practices and principles.
Contrastingly, with MMaaS, projects monitor and manage their funds, trades, orders, and everything related to their market-making operations in real-time.
This provides a high level of transparency and trustworthiness of blockchain technology.
How Can MMaaS Support the Growth of Tokenization?
Tokenization is one of the main purposes of blockchain technology.
It is key to creating innovations for raising capital, boosting cost-effective access to liquidity, and establishing access to new markets.
Although tokenization has thus far been used for applications like payments and trading of assets, it could be adopted generally by many mainstream industries.
If mass tokenization is going to happen, which many believe it will, sustainable liquidity will be needed.
Limitations of Traditional Market-Making
Traditional market-making as a business model is inherently unscalable. Proprietary market makers are limited by their balance sheets.
They only have so much capital to deploy to the market, so the number of tokens they can trade is limited.
This may compel them to enter into debt, further increasing the risks of their market-making operations and exposing their clients to systemic risk.
Therefore, new liquidity models like MMaaS are vital to support the growth and sustainability of mass tokenization.