Efficient Frontier
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Efficient Frontier

Cryptocurrency exchange market makers: What to expect

How to measure a market makers‘ performance and what to expect when it comes to spreads, uptime and reporting. Part 2 in our blog series sharing the emerging standards for cryptocurrency market making

1) Spreads

2) Solid slippage maintenance

3) Capital provision

4) Availability (uptime)

  1. Market volatility
  2. Technical issues with communicating with the exchanges, often during high market volatility
  • Allow to widen the spread in these cases
  • Minimize exchange malfunction specifically in this situations
  • Be ready to pay back for losses caused by possible exchange malfunction (slowness, disconnectivity etc.)

5) 24/7 monitoring, support and high responsiveness

6) Accurate reporting

7) Additional trading activity

8) Ethics and Trust

How to measure a market makers performance

Technical

  1. Capital deposited to MM accounts
  2. KPI (Key Performance Indicators)
  3. Spread — we recommend measuring spreads from the market maker mid as it is better if provided from a much larger liquidity pool and not the target exchange.
  4. Order book size — measure of layers and capital the MM is providing within the book
  5. Uptime — What orders are in the market, according to size and spreads
  6. Trading volume- Partnership centric market makers will try to benefit the market beyond the KPIs. It is important to measure trading participation as well.

Non technical

  1. Communication and responsiveness from the team
  2. Professionalism and speed of getting things done
  3. Reliability — consistent with their promises and deliverables

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Sarah Wiesner

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