Source: Man Kun Blockchain Law
01 What is a Market Maker in the Crypto Industry?
A Market Maker, a fancy term often associated with the financial fields of stocks and futures, leaves countless beginners in awe of its professionalism and high entry barriers. When Market Makers appear in the crypto industry, the combination of the two becomes even more incomprehensible.
In fact, Market Makers are not as mysterious as they seem. They were invented by the Dutch to address liquidity issues in the market. Simply put, if you want to buy a certain stock (which can be futures or some type of cryptocurrency) at a price of 100, but there are no sellers available at that price or at that time, the transaction cannot take place. This lack of liquidity in the market can lead to a decline as funds and resources cannot be allocated properly. At this point, an intermediary appears who is willing to sell you the stock (futures or cryptocurrency) at a price of 100, which he previously purchased from the previous party at a price of 90. This way, you get the stock, he makes a profit, and the exchange earns fees. Everyone has a bright future.
Therefore, Market Makers are a mechanism that mature markets should have. They increase market liquidity and act as lubricants. The crypto industry is no exception.
- LianGuairadigm The Gambling Table on Mars – Cryptocurrency Exploration and Speculation
- Comprehensive Overview of Decentralized Stablecoin Landscape
- Philippines SEC collaborates with US SEC to combat cryptocurrency fraud
Today, in the crypto industry, many exchanges have Market Makers, allowing everyone to buy and sell cryptocurrencies more easily. The principles are no different from those in the securities market, but the criminal risks faced by Market Makers in the crypto industry are much higher.
02 What are the risks of Market Makers?
In China’s securities market, Market Makers are subject to strict admission policies. For example, if you want to be a Market Maker in the Sci-Tech Innovation Board (STAR Market), you must meet the rigid requirements of having a net capital of no less than 10 billion yuan in the last 12 months, and a classification rating of A or above for the past three years. In addition, you need to submit an application to the China Securities Regulatory Commission and obtain their approval before you can “hold a license”.
Of course, this is in the beautiful and intelligent A-share Sci-Tech Innovation Board, which is a legitimate “casino”. The crypto industry, which is neither loved by the government nor regulated, cannot be compared. Major overseas Market Makers, such as Jump, Wintermute, Amber Group, B2C2, and DRW Trading, are not without their problems (some have been heavily criticized due to significant fluctuations in individual projects), but they are mainly not regulated by Chinese criminal laws, so there is no need to discuss them. Let’s focus on the Market Makers in domestic exchanges.
First and foremost, it should be pointed out that currently, most of the secondary markets in China involve consignment and resale models, and do not yet involve Market Makers (although they may still be manipulated). We are mainly discussing those exchanges that have gone underground and hidden in mysterious corners.
As we all know, after the 94 Announcement was issued, many exchanges were hit and collapsed. They either went offshore or moved underground. These exchanges that have relocated often face a lack of liquidity due to the loss of traffic. Therefore, they need market makers to revitalize the market. But this often becomes their “evidence of guilt.”
The direct reason is that the 94 Announcement explicitly prohibits any so-called token financing trading platforms from engaging in the exchange of legal tender and tokens or “virtual currency” with each other, buying or selling tokens or “virtual currency” as a central counterparty, or providing pricing, information intermediation, and other services for tokens or “virtual currency.”
As a result, if market makers are introduced from external sources, it’s fine. Otherwise, this behavior of acting as both a referee and a player can easily be regarded as “market manipulation.” I’m not saying that it constitutes the crime of “market manipulation.” Of course, this charge is not accurate. The correct term is “manipulating securities and futures markets.” The punishment is for those who use illegal means to “harvest leeks” in regular and legal securities and futures markets. In our cryptocurrency circle, this gray area doesn’t need this charge. However, if one engages in self-trading, spreads false information, and pumps up the price before selling, it’s possible to touch on the crime of fraud. Of course, specific issues need to be analyzed on a case-by-case basis. I’m not saying that all cases will constitute the crime of fraud, but one should be cautious of investors’ persistence (reporting) after feeling humiliated.
In addition to the crime of fraud, there is another potential charge that often appears in the field of economic crimes, which is the versatile “illegal business operation.” Putting aside some qualitative disputes in practice (as a defense lawyer in a new field, I have objections to the abuse of this charge), investigative agencies love to use this charge to catch everything in one net. Therefore, from a compliance perspective, this charge is like a Damocles sword hanging over your head, which may puncture you at any time if you have the “original sin.”
Of course, in reality, there are also those who claim to be market makers but are actually gambling. Without a doubt, this is suspected of constituting the crime of operating a gambling house, but I won’t go into detail here.
03 Conclusion
Market makers are often associated with “market manipulators” and become nightmares for countless leeks. In the cryptocurrency circle, where regulation is in a state of ambiguity, market makers do indeed seem to be more “productive.” However, if they go too far, some players may not just lose and flip the table so simply.
It’s always right to earn the money you deserve.
Like what you're reading? Subscribe to our top stories.
We will continue to update Gambling Chain; if you have any questions or suggestions, please contact us!
