The cryptocurrency market is known for its volatility, where market makers are essential for ensuring price stability and liquidity. Without their presence, traders could experience significant price gaps, long delays, and erratic trading situations. Market makers profit from trading volume and the spread; however, practices like wash trading and price manipulation are not uncommon.
Since the cryptocurrency market began, it has been plagued by questionable and unethical market-making practices. Reputable companies, including Tether and Bitfinex, have faced allegations of influencing Bitcoin and other cryptocurrency prices through their market-making strategies.
Wash trading involves alternating buying and selling of the same token to fabricate artificial trading volume. This method misleads investors and distorts the actual market activity by creating the pretense of significant volume. Amid these issues, ethical platforms like Kairon Labs emphasize fostering a healthy market environment.
The Hidden Dangers of Market Making: Wash Trading by the Numbers
Fraudulent platforms deceive investors and harm the reputations of legitimate market makers. Wash trading can occur on both centralized (CEXs) and decentralized exchanges (DEXs). While DEXs impose gas fees on trades, increasing the cost of wash trading, it has not deterred those engaging in it. According to Chainalysis, five DEX pools were involved in wash trading totaling $78 million in April 2024. The monthly average of involved pools remained stable, indicating that a small number of actors drive wash trading within the broader pool of approximately half a million.
Unscrupulous market makers create fake trading volumes by selling trading bots to customers. These bots range in price from $50 to $100,000, and a bot that simulates $100,000 in 24-hour trading volume costs about $2,000 in ETH. These bots perform rapid buy-sell actions on a token once the customer pays.
Reliable Market Makers Matter
Market makers come in various forms, with exchange and token market makers being the two primary types. Exchange market makers aim to provide a stable and liquid trading environment for specific crypto exchanges, while token issuers enlist token market makers to ensure liquidity, especially during a cryptocurrency’s initial stages or periods of low trading volume. This type of market-making assists new digital assets in gaining visibility and traction in a competitive landscape.
Kairon Labs bridges a gap in the digital asset landscape by offering professional market-making services that deliver institutional-grade liquidity solutions. They focus on sustainable market conditions and optimal liquidity strategies, catering to DEXs, CEXs, and cryptocurrency projects. Kairon Labs is trusted by both token issuers and investors, utilizing proprietary trading software that guarantees global coverage across over 100 exchanges, adapting to market changes instantly.
Building Lasting Value for Sustainability
Regulatory bodies are catching up with deceptive platforms that mislead investors. Recent actions taken by the US Attorney’s Office of the District of Massachusetts have led to charges against four market makers for promoting market manipulation services such as “pump and dump” schemes and wash trading. One of these companies allowed clients to specify daily wash trade volumes through a dashboard, marketed as “volume support.”
Old Tactics, New Applications
Fraudulent platforms are repurposing traditional schemes like front-running within the context of new digital assets. Nonetheless, thanks to regulatory measures and the work of credible market makers, these practices are declining. Just as in traditional markets, sustained market value is beneficial for all participants. In both sectors, there’s a growing emphasis on value over sheer growth potential. While growth assets may attract attention for rapid gains, value stocks have historically provided reliable returns over time.
