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 truly want?
Ought to token tasks be their very own onchain market maker?
It’s a query that has been making its approach into increasingly more conversations, so I invited Primal Glenn (BD at Bancor) and Dr. Mark Richardson (Undertaking Lead at Bancor) to affix me on a Blockchain Banter devoted to the subject.
We walked via 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 downside nobody desires to speak about
Glenn opened with a concrete case.
A brand new challenge — no token stay but, however with a token central to its protocol — was lately making ready for its TGE (token technology occasion). As a part of the launch, they approached centralized exchanges.
What they have been informed by one particularly is one thing many founders have quietly heard:
The change needed 8–10% of the entire token provide.On high 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, below a contract that aligns incentives and defines how these tokens will be used.
In crypto, the strains 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 packages.Tasks can discover themselves paying charges and handing over provide for packages that largely profit the change’s personal ecosystem, not their very own respective group.
Mark summarized it bluntly: a few of these offers are “par for the course, however perhaps a little bit extra predatory than impartial.”
On this specific case, the challenge 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 challenge selected to skip the CEX route and conduct its TGE onchain utilizing a regular fixed product AMM. On paper, that sounds extra clear and honest.
In observe, it raised a distinct downside.
Onchain observers watched because the challenge was promoting into the pool, a unilateral promote strain.
The Crypto Twitter group was fast to reply, saying that in the event that they have been making an attempt to “market make,” — like they claimed — customers anticipate to see:
Each promoting and shopping for, not simply promoting.Some form of seen construction to the technique.
The challenge may need had a plan however the mechanics weren’t apparent. And with no clear clarification, it appeared as if the crew 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 grasp the constraints, Mark went again to fundamentals.
The earliest Bancor swimming pools used the basic fixed product AMM:
If a challenge 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 will be inferred, the pool appears to be like deep, and a market exists.
However at launch, nearly nobody outdoors the challenge holds the token.
Which means:
If nobody holds the token but, nobody can promote into the pool.The preliminary USDC is essentially symbolic — successfully untouchable till somebody buys the token.
On high of that, the challenge is pressured to lock up significant quantities of quote property (USDC, ETH, and so on.) in a construction that doesn’t replicate how a challenge truly 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 flawed form
Amplified liquidity, generally referred to as concentrated liquidity, was meant to repair a few of these inefficiencies.
Glenn identified that with concentrated liquidity:
A challenge can present single-sided liquidity out of the cash (for instance, solely its personal token at a better worth than the present market).It could possibly determine, “I wish to promote from this worth upward, with out having to seed each property.”
That’s a step nearer to what a token issuer would possibly need.
However Mark highlighted a basic constraint: concentrated liquidity programs 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 “charge”. I put this in citation marks as a result of Mark despises the time period “charge” in DeFi. For extra on that although, see his EthCC presentation “Fixing Objectively Unhealthy Fashions in LP Efficiency Evaluations”
Fixing Objectively Unhealthy Fashions in LP Efficiency Evaluations | EthCC[9] Archives
Put otherwise:
If a pool sells a token at a given worth, it then routinely affords to purchase it again at almost the identical worth.That could be advantageous for consumer-focused liquidity, nevertheless it’s not how a challenge or skilled market maker usually manages threat.You may promote thousands and thousands value of tokens, solely to be pressured to face prepared to purchase all of them again at nearly the identical worth, for a tiny charge.
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 relentless battle for blockspace and fuel in opposition to different onchain actors.Further third-party infrastructure and related charges.
Glenn summed it up: in case you attempt to run a real purchase low, promote excessive technique throughout a number of worth ranges utilizing normal 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 listing is easy:
Promote tokens at outlined worth factors or over an outlined worth vary.Purchase again tokens at decrease costs utilizing proceeds, in a approach that may run with out bots or babysitting blocks.Hold every little thing onchain and clear, so the group 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 challenge specific its supposed market construction straight onchain — without having to wire half its provide to an change or keep a fragile internet of bots.”
That’s the place Carbon DeFi entered the dialog.
How Carbon DeFi turns token tasks into onchain market makers
Glenn walked via how Carbon DeFi is being utilized by token tasks immediately to construct precisely the form of construction this specific challenge was lacking.
At a excessive stage, Carbon DeFi lets a token challenge:
1. Outline a promote order
Single-sided if desired (for instance, solely the challenge’s token).Both at a selected worth 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 distinct worth
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 worth stage like a typical CLAMM.
3. Recycle proceeds routinely
When the promote aspect executes, the token obtained is routinely rotated into the purchase order.When the purchase aspect executes, the bought tokens rotate again to the promote aspect.The result’s a recurring, “purchase low, promote excessive, repeat” loop, totally onchain.
Crucially:
The challenge can fund just one aspect initially (for instance, simply its personal token) and let proceeds fund the opposite aspect.It could possibly alter ranges, costs, funding, and technique kind at any time with out tearing down and rebuilding every little thing.Each technique is absolutely clear:Orders stay onchain.The Carbon DeFi UI can show methods, fills, edits, and timestamps.Tasks can share direct technique hyperlinks with their communities.
This addresses precisely the criticisms that hit the challenge in Glenn’s instance:
As a substitute of a pockets that “simply sells,” viewers can see a structured promote vary and a corresponding purchase vary.As a substitute of making an attempt to deduce intent from random transactions, customers can see the supposed market logic encoded as a technique.
As Glenn put it, this isn’t about outsourcing every little thing to an exterior market maker; it’s about giving token tasks a local, protocol-level option 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 tip of the dialog, the reply wasn’t a easy sure or no.
On centralized exchanges, “being your individual 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 challenge:
Controls its provide,Has a transparent thought of the way it desires to distribute and recycle that offer, andUses tooling that lets it specific actual market logic straight onchain,
then sure — being its personal onchain market maker cannot solely be viable, however preferable.
As Mark famous:
A challenge that controls its personal token provide will not be certain by the identical constraints as a third-party market maker that has to function purely for revenue. It could possibly outline success otherwise: distribution, stability, runway, group 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 programs like Carbon DeFi.
Full Recording
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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 latest 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 potential on the earth of decentralized finance. For extra data, please go to www.bancor.community.
Ought to Token Tasks Be Their Personal Market Maker? was initially printed in Bancor on Medium, the place persons are persevering with the dialog by highlighting and responding to this story.
