The relevant market manufacturer may be the launch of a cryptocurrency project, opening the door to the main stock exchanges and ensuring valuable liquidity to ensure that the token will be commercial – but when the wrong encouragement is baked, the creator of the market may become a destructive ball.
One of the most popular and misunderstood offers in the market of the market is the “loan option model”. It is then that the project borrows tokens to the market manufacturer, which then uses them to create liquidity, improve price stability and facilitate in securing offers on the cryptocurrency exchange. In fact, it was a death sentence for many adolescent projects.
But behind the backstage of many market manufacturers, it uses the controversial tokena loan structure to get wealthy at the expense of the projects themselves to support. These offers, often formulated as low and high prizes, can cram the prices of tokens and leave adolescent cryptographic teams try to recover.
“How it works, that market manufacturers generally borrow tokens from the project at a certain price. In exchange for these tokens, they generally promise that they will get them on large stock exchanges,” said CointeLraph, founder of Givner Law. “If they don’t do it, they pay them back at a higher price during the year.”
It often happens that market manufacturers drop borrowed tokens. Initial sales tanks price. After the craterity, prices buy tokens with a discount, maintaining profit.
Source: Ariel Givner
“I haven’t seen any token that really use these market creators,” said Givner. “I am sure they are ethical, but the larger ones I have seen simply destroy the charts.”
Market manufacturer’s guide
Companies such as DWF Labs and Wintermute are one of the most celebrated market creators in the industry. Earlier proposals and contracts checked by Cointelegraph suggest that both companies proposed Models of loan options as part of their services – though Wintermute’s proposals Name them with “liquidity regulations”.
DWF Labs told Cointelegraph that he is not based on the sale of borrowed assets for financing positions, because its balance sufficiently supports its activities between stock exchanges without relying on liquidation risk.
“The sale of borrowed tokens can damage the liquidity of the project- especially in the case of small tokens to medium capitalization- and we do not weaken the ecosystems in which we invest,” said Andrea Grayev, managing partner of the DWF Labs.
Related: Who really enriches from the cryptographic white?
While DWF Labs emphasizes its involvement in the development of ecosystems, some analysts and observers of the industry have raised fears About his commercial practices.
Wintermute did not answer Cointelegraph’s request for comment. But in February X, the general director of Wintermute, Evgeny Gaevoy, published a series of posts to share some of the company’s departments with the community. He said that Wintermute was not a charity, but in the “matter of making money through trade.”
Source: Evgeny Gaevoy
What happens after the market manufacturer gets tokens?
Jelle Buth, co -founder of the Market Maker Enflux, said CointeLgraph that the loan option model is not unique to known market manufacturers, such as DWF and Wintermute and that there are other parties offering such “predatory offers”.
“I call it an arbitration of information in which the market manufacturer clearly understands the advantages and disadvantages of the transaction, but it is able to include it so that it is a benefit. They say:” It is a producer of the free market; you do not have to put capital as a project; we provide capital; we provide market creation services, “said Buth.
On the other hand, many projects do not fully understand the disadvantages of the loan options and often find out that they have not been built in their favor. Buth recommends projects to measure whether borrowing their tokens would cause quality liquidity, which is measured by orders in the book and clearly described in key performance indicators (KPI) before committing such contracts. In many offers, KPI loan options are often missing or unclear when replaced.
Cointelegraph has reviewed the results of a token of several projects that have signed the loan options with market creators, including some who worked with many companies at the same time. The result was the same in these examples: the projects remained worse than when they started.
Six projects that cooperated with market creators under the loan options agreement. Source: Coingecko
“We’ve worked with projects that were fucked up after the loan model,” said Cointelegraph Kristiyan Slavev, co -founder of Web3 Accelerator Delta3.
“It’s exactly the same pattern. They give tokens, then they are abandoned. This is happening,” he said.
Not all market creators’ offers end with a disaster
The loan option model is not by nature harmful and can even benefit larger projects, but the poor structure can quickly change it predatory, according to Buth.
Advisor for the offer that talked to Cointelegraph in terms of anonymity, he repeated that the results depend on how well the project manages the reports of liquidity. “I saw a project with a maximum of 11 market creators – about half of the loan model and the rest of smaller companies,” they said. “The token did not drop because the band knew how to manage the price and balance the risk of many partners.”
The advisor compared the model with a bank borrowing: “Different banks offer different rates. Nobody conducts activities related to losing, unless they expect a return,” they said, adding that in cryptography the balance of power often favors those who have more information. “It’s the strongest survival.”
But some say the problem works deeper. In the last X PostArthur Cheong, founder of Defiance Capital, accused centralized exchanges of pretending to be ignorant of artificial prices powered by designs of tokens and market manufacturers working in Lokes. “Trust on the Altcoin market is eroded,” he wrote. “Absolutely strange that Cexes change absolute eyes to this.”
Despite this, the advisor on the offer maintained that not all stock exchanges are complicit: “Various layers also take really extreme actions against any predatory market producers, as well as projects that may look like they could not stand. What stock exchanges do that they immediately close this account while they are conducting their own investigation.”
“Although there is a close working relationship, it has no influence between the market manufacturer and the exchange of what is mentioned. Each exchange would have its own due diligence processes. And to be straightforward, depending on the level of exchange, there is no such solution.”
Related: The problem of crypto deban is maintained despite the new regulations
Thinking about encouragement to the market manufacturer
Some are in favor of moving towards the “setting model”, in which the project pays a flat monthly fee for the market manufacturer in exchange for clearly defined services, instead of distributing tokens in advance. This is less risky, although more expensive in a short period.
“The setting model is much better, because in this way market manufacturers have incentives to work with projects in a long term. In the loan model you get a one-year contract; give you tokens, drop tokens, and then a year later you return tokens. Completely worthless.” Slavev said.
While the loan options model seems “predatory”, as Buth put it, Givner noticed that in all these contracts both involved pages agree to a secure contract.
“I don’t see a way that it is illegal at present,” said Givner. “If someone wanted to look at manipulation, one thing, but we are not dealing with securities. So the gray zone is still in cryptography – [to] To some extent the Wild West. “
The industry is becoming more and more aware of the risks associated with the loan options models, especially when suddenly tokens are increasingly raising red flags. IN Currently removed x postBureau Onchain Bureau claimed that the recent decline in 90% of the OM Mantra token was caused by the FalConx loan agreement. Mantra denied the claim, explaining that Falconx is a trading partner, not the creator of the market.
Edited copy of LinkedIn to LinkedIn Post Onchain Bureau. Source: Nahuel Angelone
But the episode emphasizes the growing trend: The loan option model has become a convenient scapegoat for tokens, often because of a good reason. In the space where the conditions of the transaction are hidden for NDA, and roles such as “Maker Market” or “Trade Partner” are at best liquid, it is not a surprise that public opinion adopts the worst.
“We are talking because we earn on a fixing model, but also [loan option model] Just killing projects too much, “said Buth.
Until the transparency and responsibility improved, the loan options model will remain one of the most misunderstood and used cryptocurrency offers.
Warehouse: What do cryptocurrency market manufacturers actually do? Liquidity or manipulation
