Market making is not for the faint of heart. For example, even the smallest market maker has a hard time serving the entire market. Typically, they rely on volume to earn an edge. Moreover, market making involves buying and selling assets constantly. This can have a significant impact on the rest of the trading ecosystem.
In fact, if you’re a professional trader looking to get closer to the fast optical internet cable, then market making is the smart way to go. That’s because the average time it takes to send a transaction on a centralized exchange is at least hours. However, when using a DeFi platform, a user can send a transaction in as little as 15 seconds. Not only can they do that, but they also know that the funds are secured by the underlying blockchain.
The biggest challenge for market makers is borrowing inventory. Fortunately, there are several alternatives. Some of these include liquidity pools and automated market makers. Using the latter, a market maker can make a lot of money from a small amount of capital.
The first and probably the most obvious is the Automated Market Maker (AMM). This is a type of system that pools liquidity to act as a counterparty. It can be used to solve token swaps. Similarly, it can also be used to provide an automated price quote. AMM systems are technically sustainable.
Another market making innovation that is being implemented by a number of DeFi projects is the use of smart contracts to automate order matching and other order management functions. These can improve efficiency and reduce the risk of human error. At the same time, they can also help smaller projects grow faster.
One of the coolest features of DeFi market making is its ability to offer users an array of liquidity options. Unlike a centralized exchange, users can access multiple liquidity sources at the same time. If they want to buy or sell an asset, they can always find a counterparty willing to do so. Also, unlike a centralized exchange, DeFi offers a plethora of pairings, including the ETH-Tether and EtherDelta tokens.
There are also new DeFi projects like the Serum DEX, which is attempting to implement a hybrid model that combines both liquidity pools and automated market making. Other innovations to watch out for include the Opium Protocol, which uses meta-transactions to make order matching a breeze.
Lastly, the best part about DeFi is that it can be used by anyone, whether they are an experienced crypto sleuth or a seasoned finance pro. As such, the market making part of DeFi is a function that has the potential to cut out a significant number of middlemen. And with an active go-to-market strategy, it can certainly beat the competition.
To learn more about what DeFi offers, visit the official DeFi website. You can also read up on the best DeFi apps, and other helpful tips and tricks. With its innovative approach to cutting out middlemen, DeFi may well be the de-facto market of the future.
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- Source: Plato Data Intelligence: PlatoData.io