What do crypto market makers actually do? Liquidity, or manipulation

Few ordinary crypto holders understand the role of market makers.

At the simplest level, market makers provide liquidity to keep assets tradable in the cryptocurrency market, ensuring that if a user tries to buy or sell a coin on a particular exchange, they’re usually able to.

However, unethical market makers also manipulate token prices, inflate volumes and conduct pump and dumps.

Mathias Beke, Kairon Labs

Many cryptocurrency projects hire them to goose their performance metrics using strategies like wash trading, which is where entities repeatedly trade the same asset back and forth to create the illusion of volume. In traditional markets, this is illegal market manipulation, misleading investors about the demand for a particular asset.

“A lot of [token] projects are fooling their own trader community or investors by faking these wash trades or these volumes,” says Mathias Beke, co-founder and head of trading at Belgium-based market maker Kairon Labs.

He adds that these cowboys give legitimate market makers a bad name but says global regulatory developments are progressively making it more difficult for such businesses to thrive.

Hard data on the extent of wash trading is difficult to come by. Bitwise famously reported in 2019 that 95% of the volume on unregulated exchanges was fake. A more recent study by the National Bureau of Economic Research (NBER) in December 2022 found that the figure had eased to around 70%.

Yang Yang, a co-author of the NBER study, tells Magazine that properly regulated exchanges accounted for less than 3% of spot market transactions, according to the research.

Regulated exchanges, as defined under New York’s crypto BitLicense, comply with stringent requirements around Anti-Money Laundering programs and customer information record-keeping, and they have a disaster recovery system.

Since BitLicense debuted in New York, other financial hubs around the world — such as Singapore, Hong Kong and Dubai — have enforced strict licensing requirements of their own.

“In an unregulated exchange, you can immediately spot that their…

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