Flowdesk: Market Making as a Service

Why we invested in Flowdesk

Julien Thevenard
Fabric Ventures
Published in
6 min readJun 27, 2022

It is well understood that Web3 revolutionised ownership with tokens that are freely transferable and which represent shared ownership in a project. While it is easy to issue a new token, it is incredibly difficult to grow a community so projects naturally take time to grow. Through that journey, markets to trade these tokens are essential, enabling new members to join the movement, and there is an entire industry just to facilitate that, with billions traded every day.

We all know about exchanges, whether centralised or decentralised, where the trading takes place; but we don’t necessarily think about market makers who actually play an essential role in making these markets liquid, and especially for smaller projects. The role of the market maker is to be a last-resort counterparty to buy from / to sell to, ensuring that whenever someone wants to buy or sell, they can do so at a relatively fair price even if they want to trade large amounts. A market maker is successful when, at all times, it is possible to trade a given quantity of token, for example $100,000 worth of tokens, without affecting the price significantly on the exchange they operate on, for example by affecting the price by a maximum of 0.5%.

We know from the early days of decentralised exchanges that without market makers, the user experience for newer tokens is truly awful, as it could take hours to find a counterparty to trade with on Etherdelta or Radar Relay! This is why innovation like Uniswap, with always on liquidity, were and still are a really big deal for newer projects, although they have their own pros and cons and it is clear that still a significant percentage of investors aren’t interested in trading through these venues, as they still prefer using centralised exchanges. To meet this demand, crypto projects aim to be listed on centralised crypto exchanges ; and these exchanges require that crypto projects engage professional market makers to guarantee a good trading experience when they list the tokens. So:

  1. crypto projects need crypto exchanges to increase awareness about, and accessibility to, their token.
  2. crypto exchanges require from crypto projects that they engage professional market makers to list their tokens to guarantee good liquidity at all times.

Whilst this is changing slowly, crypto remains largely unregulated, i.e. many exchanges aren’t regulated and market makers aren’t regulated either. Large market makers and exchanges are in a comfortable position to impose their terms as their role in the industry is so essential: exchanges listing can literally make a project successful by shining attention to millions of potential users. As market makers know that their service is essential, and that they operate in a low competition market, they enjoy being able to set their terms quite freely.

The economics of market makers are relatively simple: to generalise, they require crypto projects to lend them tokens to market make with, and they require to be paid a fee for their service. The service is the following: to guarantee a ‘bid-ask’ spread on a given exchange, for a given uptime, and a given depth. For example, they could guarantee that the price difference between the best price to buy and the best price to sell token $XYZ is within a range of 0.1%, and they can guarantee this for 99.50% of the time. The 0.5% left is to cover them in extremely volatile times. So if the price of $XYZ is $100, they would ensure that there is a buy order at 99.9 or better, and a sell order at 100.1 or better in this example. And then, as people trade against market makers, they manage their inventory of tokens to buy back the tokens they sold, and sell back the tokens they bought, to try to be as neutral as possible and be able to continuously offer their service.

The challenges that the crypto industry has been facing, and that’s a generalisation and doesn’t necessarily apply to all market makers, is that the market makers may sometimes find themselves in positions where they can trade against the projects’ interest for their own benefit, leading to increased profits for themselves. For example, they can decide to stop market making when markets are highly volatile (and when their liquidity is needed the most!), which is not against their contracts, which is less than ideal for the markets they are meant to be market making for. They could also be aware of market moving news, such as expected launch on new exchanges (as they are about to market make on the new venue), and there is nothing preventing them from trading around that.

It’s all fair game, they are profit-seeking organisations, but from a project’s point of view, they pay for a service and their community suffers the loss from these events.

There are different ways to look at this problem, but we think that we can do better here as an industry. Always-on liquidity protocols like Uniswap are doing better here, by providing liquidity no matter what happens in the markets, and without being able to change the pricing against a project around news events. We feel this is how it should be. It should not be a question of trusting people to act well, it should simply be that it is not possible to do otherwise. It’s this concept of “can’t be evil’ that is so fundamental to Web3, and equally important in centralised market making. This fundamental principle led us to growing excitement for Flowdesk’s vision and is the reason for which we invested in their Series A.

Flowdesk is a market maker that is slightly different to the market making described above. It is the same with regards to the service that is offered, however, their role is only to provide and maintain the technical infrastructure to market make and make that available to crypto projects. They do not profit from how the market making is done, as they only earn a fee for providing the tools to market make, and therefore they enable crypto projects to set their own terms for the activity of market making. If the projects want to take more risk and be available at all times and especially in violent market conditions, they can do so. If somehow the market making activity is profitable, projects can decide to use these profits to take more risk and tighten the pricing, et cetera.

As opposed to being a service provider with room to trade against projects, Flowdesk is a technological partner, a neutral facilitator on the sides of projects. The only way they win is if their customers are successful and continue working with Flowdesk for years to come. We feel this is how market making should be. It’s clear that not all market makers try to improve their profits by trading against their customers, but why take a chance? The ethos of the crypto industry is not to have to trust counterparties to behave correctly when no one is looking. This is why we are excited to be working with Flowdesk in improving market making for the benefit of all. This is why we are proud to be spreading the good word about Flowdesk’s activity and that is why we can recommend them to everybody.

If you are a crypto project in need of market making, you should definitely talk to Flowdesk, and we will be happy to facilitate an introduction to their team!

We back the boldest technologists & communities at the earliest stages, supporting them throughout their journey and becoming active participants within the networks they are building.

To learn more about Fabric Ventures, you can visit our website, follow us on Twitter and read our investment thesis.



Julien Thevenard
Fabric Ventures

Associate at Fabric Ventures