Market makers are crucial for the crypto ecosystem as they play a very vital role. Their market making activities ensure liquidity in the market, promote efficiency in trading and keep price volatility at bay. Binance exchange, for instance, has incentive programs solely dedicated to funding market makers who keep the spreads tighter and deepening the order books. In return, these market stabilizers ensure substantial profits for both the traders and projects.
However, despite their crucial role, there are controversies that have arisen around market makers. These controversies have sparked concerns that market makers could be manipulating the market for substantial profits at the expense of retail crypto traders.
The Controversies Surrounding Market Makers
Market makers place buy and sell orders hence ensuring that market participants get to trade with minimal risks of significant price movements. In fact, without these key ‘players,’ the market spread would be wider, liquidity would be lower and price fluctuations would be massive.
In fact, “a good market maker has one job, quoting around mid market, adding as much depth as they can but remaining delta neutral. And the embedded call is nice, because liquidity is valuable, but they are aiming for tight spreads, that’s it!,” the founder of Infinex wrote on X.
However, the investigation of Web3port associated projects including Goplus, Myshell, and Movement, has raised questions. Crypto expert Jason Chen, for instance, has asked questions about how Web3port has so much power. “How can such a market maker have the strength to sign so many projects in succession?” Chen shared.
Additionally, Chen highlighted the substantial profits made by Web3port. According to Chen, the terrifying thing is that Web3port “made 38 million US dollars on just one project.’ Chen added that “this profitability is too exaggerated” with claims that the ‘entire crypto circle is working for market makers.’
Binance’s Investigation into Movement (MOVE) Market Maker
A Binance investigation into the Movement (MOVE) market maker, confirmed that the market maker was involved in suspicious activities. As shared on X by Binance Chinese, Binance found out that the market maker for MOVE is associated with another market maker that was banned by Binance for misconduct.
Binance banned the market maker in question for engaging in various suspicious activities. On December 10, 2024, the market maker sold 66 million MOVE tokens a day after its launch while placing just a few buy orders. The sell-off resulted in a sharp price dip of the Movement token, hence putting the market maker on Binance’s radar for blacklisting.
To protect its users, Binance reported the incident to Movement Labs and Movement Foundation teams. Additionally, it froze the market maker’s related earnings which the MOVE project decided to use to compensate the affected users. However, the Movement team is yet to issue a detailed structure for the compensation.
Furthermore, Binance delisted and banned the market maker from any activities on the exchange. This move highlights the strict and user-centric approach for Binance to protect users from manipulation.
Other Speculated Market-Making Activities
In previous instances, speculation has had it that market stabilizers have caused the collapse of several crypto projects. Particularly, one rumor had it that the collapse of Terraform Labs was as a result of market-making activities by a large market maker. The depegging of Terra’s UST stablecoin could thus have been due to significant market sell-offs.
Based on this scenario involving Terra’s stablecoin and the recent one involving the MOVE project, market-makers could be manipulating crypto projects for profits. This raises questions about having unchecked crypto market stabilizers. Their ability to manipulate the market puts traders at risk of losses.
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