Bridging the Liquidity Gap: A Call for Genuine Market Making in Cryptocurrency

SKL Trading
4 min readAug 24, 2023

The cryptocurrency industry is at a pivotal juncture. Behind the glitzy headlines of astronomical gains and roller-coaster price movements, a more insidious issue is brewing — a liquidity crisis. This is not a minor hiccup that can be swept under the rug; it’s a deep-rooted problem that threatens the very essence of what makes a market functional.

At SKL Trading, we’ve been examining the underlying issues and have come to the conclusion that the time for a real solution is now.

A Crisis in the Shadows

Cryptocurrency’s liquidity crisis might not be making headlines, but it’s there, hiding in plain sight. The rampant wash trading, fake volume, and unsubstantiated hype have created a market scenario akin to a greed-induced death spiral.

The problem stems from an illusion. Many cryptocurrencies report daily trading volumes in the hundreds of thousands of dollars, seemingly indicating a healthy, liquid market. However, a closer inspection often reveals an unsettling truth. Behind those numbers, real traders find it impossible to actually buy or sell the asset. How is this possible?

Wash Trading and Fake Volume: A Deceptive Practice

Wash trading, a practice where buy and sell orders are simultaneously placed to artificially inflate trading volume, is one of the primary culprits. Market makers, driven by short-term gains and a misguided focus on volume rather than liquidity depth, often engage in this practice.

Take the case of wMoxy, which seemed to have a 24-hour volume of nearly $700,000. A glance at the Liquidity Depth revealed that there was next to no organic participants on the book. This nearly-million-dollar volume was merely a façade, a deceptive practice that undermines real liquidity and damages the integrity of the market.

Notice the ±2% depth comfortably lounging below $1,000 on MEXC, now pair this with an unnaturally uniform volume profile.

But what’s this? Slippage occurring on each 5-minute candle is generally, quite suspiciously, under 1%. How can this be, you might ask, furrowing your brow in disbelief? It’s a clear indicator that a market maker is filling their own front two orders repeatedly, craftily giving the illusion of bustling market participants. It’s a magic trick worthy of Wall Street’s finest!

Liquidity Depth: The True Measure of a Healthy Market

At SKL Trading, we believe that the key to thriving in the post-bubble burst era is to focus on liquidity depth, not volume or hype. Liquidity depth is what ensures a healthy order book that can meet both buy and sell pressures, minimises slippage, and creates price stability.

This isn’t a new concept. It’s been standard practice in equity markets since 1626 when shrewd market makers created liquidity for Dutch East India company shares. We need to borrow from this time-tested wisdom and apply it to the fast-evolving world of cryptocurrency.

Introducing Genuine Market Making

What the industry needs are genuine market makers who create real depth of liquidity. SKL Trading was formed with this vision in mind. Our proprietary Market Making algorithms ensure liquidity depth on both the buy and sell sides at all times. These algorithms support price stability, enable inward investment, and generate profit — profit that we share with our clients.

Conclusion: A New Path Forward

Cryptocurrency’s growth has been spectacular, but it’s time to mature. Wash trading and fake volume must give way to genuine liquidity and fair market practices.

At SKL Trading, we’re committed to making markets fairer, more accessible, and more robust. We’re not happy with the current state of affairs, and we’re doing something about it.

If you believe in the future of cryptocurrencies and decentralised technology, join us in this mission. Together, we can pave the way for a transparent, honest, and thriving cryptocurrency landscape.

Contact us today to learn how SKL Trading’s Market Making services can support your token, and be a part of the change.

A special thanks to German Leonov & James A. Butler

Website: www.sklventures.io

https://www.sklventures.io/contact

Disclaimer

This article is for informational and educational purposes only and should not be construed as financial or investment advice. The strategies discussed, including any examples using actual securities, exchanges, or price data, are strictly for illustrative and educational purposes and should not be interpreted as endorsements or recommendations.

You should consult with an appropriate professional for specific advice tailored to your individual circumstances and jurisdiction. The use of our proprietary Auto-Balancer system, as well as any associated strategies and technologies, carries risks and is not guaranteed to yield a profit. Past performance is not indicative of future results.

By reading this article, you agree that SKL Trading and any of its affiliates or contributors will not be held liable for any losses or damages incurred as a result of acting upon the content herein.

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