Rethinking CEX Listings, Onchain Liquidity, and What “Market Making” Actually Means
For years, the default path was easy: launch a token, chase centralized change listings, rent a market maker (or don’t), hope all of it works out. That path nonetheless exists however is it aligned with what token tasks really want?
Ought to token tasks be their very own onchain market maker?
It’s a query that has been making its means into an increasing number of conversations, so I invited Primal Glenn (BD at Bancor) and Dr. Mark Richardson (Mission Lead at Bancor) to hitch me on a Blockchain Banter devoted to the matter.
We walked by way of an actual instance, full with what makes it tough for tasks to make a market on conventional and concentrated liquidity AMMs, and explored what a greater, clear onchain setup can look like.
The CEX itemizing drawback nobody desires to speak about
Glenn opened with a concrete case.
A brand new venture — no token dwell but, however with a token central to its protocol — was not too long ago getting ready for its TGE (token technology occasion). As a part of the launch, they approached centralized exchanges.
What they have been informed by one specifically is one thing many founders have quietly heard:
The change needed 8–10% of the full token provide.On prime of that, there have been itemizing charges.And past that exist anticipated market-making preparations — both direct retainers or token loans to third-party market makers.https://medium.com/media/21891816a66d2310843edf00981de492/href
“From day one, that’s an enormous chunk of provide and capital out the door.” And this isn’t nearly getting a list; it’s about funding ongoing market high quality on these venues.
Mark added nuance: in lots of “conventional” setups, it’s often the market maker — not the change — that receives a big token allocation, underneath a contract that aligns incentives and defines how these tokens might be used.
In crypto, the traces are blurry:
Many centralized exchanges successfully act as each the venue and the dominant market maker.Some ask for token allocations which are then distributed to their very own token holders through launchpads, quests, or staking applications.Initiatives can discover themselves paying charges and handing over provide for applications that principally profit the change’s personal ecosystem, not their very own respective neighborhood.
Mark summarized it bluntly: a few of these offers are “par for the course, however possibly a little bit extra predatory than impartial.”
On this explicit case, the venture determined to stroll away, although not with out exposing the supposed predatory ways of the centralized change first.
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Onchain launches and the transparency lure
The venture selected to skip the CEX route and conduct its TGE onchain utilizing a normal fixed product AMM. On paper, that sounds extra clear and honest.
In observe, it raised a unique drawback.
Onchain observers watched because the venture was promoting into the pool, a unilateral promote stress.
The Crypto Twitter neighborhood was fast to reply, saying that in the event that they have been making an attempt to “market make,” — like they claimed — customers count on to see:
Each promoting and shopping for, not simply promoting.Some type of seen construction to the technique.
The venture might need had a plan however the mechanics weren’t apparent. And and not using a clear clarification, it appeared as if the staff was merely dumping on the market.
If tasks do wish to be their very own market maker onchain, what instruments do they really have and the way can the mechanics be apparent to onlookers?
Why conventional AMMs don’t match what tasks want
To know the constraints, Mark went again to fundamentals.
The earliest Bancor swimming pools used the basic fixed product AMM:
If a venture desires to seed a pool with, say, $50,000 value of its token and $50,000 of USDC, it appears to be like respectable. Market cap might be inferred, the pool appears to be like deep, and a market exists.
However at launch, virtually nobody exterior the venture holds the token.
Which means:
If nobody holds the token but, nobody can promote into the pool.The preliminary USDC is basically symbolic — successfully untouchable till somebody buys the token.
On prime of that, the venture is pressured to lock up significant quantities of quote property (USDC, ETH, and so on.) in a construction that doesn’t mirror how a venture really thinks about its token:
It desires to promote a token provide at chosen costs, not simply “from 0 to infinity.”It desires to transparently purchase again at a lower cost, not the place it simply bought.It desires to fund operations and handle runway utilizing these proceeds.
Fixed product AMMs weren’t designed with this use case in thoughts. They have been designed to create steady, permissionless liquidity — to not successfully, strategically make a market.
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Concentrated liquidity: extra management, nonetheless the mistaken form
Amplified liquidity, generally often called concentrated liquidity, was meant to repair a few of these inefficiencies.
Glenn identified that with concentrated liquidity:
A venture can present single-sided liquidity out of the cash (for instance, solely its personal token at the next value than the present market).It may well determine, “I wish to promote from this value upward, with out having to seed each property.”
That’s a step nearer to what a token issuer may need.
However Mark highlighted a basic constraint: concentrated liquidity methods nonetheless comply with the identical underlying rule:
When your asks are taken, they’re transformed into bids behind the worth you simply traded at, minus a “price”. I put this in citation marks as a result of Mark despises the time period “price” in DeFi. For extra on that although, see his EthCC presentation “Fixing Objectively Dangerous Fashions in LP Efficiency Evaluations”
Fixing Objectively Dangerous Fashions in LP Efficiency Evaluations | EthCC[9] Archives
Put in a different way:
If a pool sells a token at a given value, it then routinely gives to purchase it again at practically the identical value.That could be advantageous for consumer-focused liquidity, but it surely’s not how a venture or skilled market maker usually manages threat.You possibly can promote tens of millions value of tokens, solely to be pressured to face prepared to purchase all of them again at virtually the identical value, for a tiny price.
To make this behave extra like an actual market-making engine, you’d want:
Automation to withdraw liquidity on the proper time.Bots (keepers) to repost liquidity at new costs.A continuing battle for blockspace and fuel towards different onchain actors.Extra third-party infrastructure and related charges.
Glenn summed it up: for those who attempt to run a real purchase low, promote excessive technique throughout a number of value ranges utilizing customary CLAMMs, you find yourself with an advanced, fragile bot stack, and also you’re nonetheless constrained by the protocol’s construction.
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What tasks really need from onchain market making
From the founder’s perspective, the want checklist is easy:
Promote tokens at outlined value factors or over an outlined value vary.Purchase again tokens at decrease costs utilizing proceeds, in a means that may run with out bots or babysitting blocks.Hold all the things onchain and clear, so the neighborhood can see the logic and construction.Keep away from opaque off-exchange offers, double-dipping itemizing phrases, and misaligned incentives.
In different phrases:
“Let the venture specific its supposed market construction straight onchain — while not having to wire half its provide to an change or keep a fragile net of bots.”
That’s the place Carbon DeFi entered the dialog.
How Carbon DeFi turns token tasks into onchain market makers
Glenn walked by way of how Carbon DeFi is being utilized by token tasks as we speak to construct precisely the type of construction this explicit venture was lacking.
At a excessive degree, Carbon DeFi lets a token venture:
1. Outline a promote order
Single-sided if desired (for instance, solely the venture’s token).Both at a selected value or throughout a spread (e.g., promote from $0.37 as much as $0.50).All onchain, seen to anybody.
2. Outline a purchase order at a unique value
Purchase again the token at a lower cost or vary utilizing the proceeds from the promote order.This purchase order is linked to the promote order, however not constrained to the identical value degree like a typical CLAMM.
3. Recycle proceeds routinely
When the promote facet executes, the token acquired is routinely rotated into the purchase order.When the purchase facet executes, the bought tokens rotate again to the promote facet.The result’s a recurring, “purchase low, promote excessive, repeat” loop, completely onchain.
Crucially:
The venture can fund just one facet initially (for instance, simply its personal token) and let proceeds fund the opposite facet.It may well alter ranges, costs, funding, and technique kind at any time with out tearing down and rebuilding all the things.Each technique is totally clear:Orders dwell onchain.The Carbon DeFi UI can show methods, fills, edits, and timestamps.Initiatives can share direct technique hyperlinks with their communities.
This addresses precisely the criticisms that hit the venture in Glenn’s instance:
As an alternative of a pockets that “simply sells,” viewers can see a structured promote vary and a corresponding purchase vary.As an alternative of making an attempt to deduce intent from random transactions, customers can see the supposed market logic encoded as a method.
As Glenn put it, this isn’t about outsourcing all the things to an exterior market maker; it’s about giving token tasks a local, protocol-level solution to construction their very own markets onchain — with out bots, keepers, or offchain contracts.
So, ought to token tasks be their very own onchain market maker?
By the top of the dialog, the reply wasn’t a easy sure or no.
On centralized exchanges, “being your personal market maker” is usually unrealistic. The platform, the itemizing phrases, and the market-making relationships are tightly coupled, and small tasks are hardly ever in management.
Onchain, it’s totally different.
If a token venture:
Controls its provide,Has a transparent thought of the way it desires to distribute and recycle that provide, andUses tooling that lets it specific actual market logic straight onchain,
then sure — being its personal onchain market maker can’t solely be viable, however preferable.
As Mark famous:
A venture that controls its personal token provide is just not certain by the identical constraints as a third-party market maker that has to function purely for revenue. It may well outline success in a different way: distribution, stability, runway, neighborhood alignment.
What issues is having infrastructure that respects that actuality. For a lot of groups, that’s beginning to look much less like a centralized itemizing negotiation — and extra like constructing clear, programmable onchain markets with methods like Carbon DeFi.
Full Recording
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Offered by Bancor
Bancor has at all times been on the forefront of DeFi innovation, starting in 2016 with the invention of the Fixed Product Automated Market Maker and “pool tokens” — which nonetheless stay extensively used throughout the business. The most recent innovations powering Carbon DeFi and Arb Quick Lane substantiate Bancor’s deep dedication to delivering excellence, advancing the business, and pushing the boundaries of what’s attainable on this planet of decentralized finance. For extra data, please go to www.bancor.community.
Ought to Token Initiatives Be Their Personal Market Maker? was initially revealed in Bancor on Medium, the place persons are persevering with the dialog by highlighting and responding to this story.
