Inside the Risky Business of Market Making Small-Cap Altcoins

Market making for small-cap cryptocurrencies is a niche corner of the trading world, and a recent episode of the Ledger Cast podcast pulled back the curtain on how it works. Hosts Brian Krogsgard and Josh Olszewicz spoke with Wes Pryor of Liquid Malta, whose firm provides market making services mostly for low-liquidity altcoins, including tokens that have just been listed.

A large share of Pryor's work has involved projects that run initial token distributions on decentralized exchanges such as IDEX. The conversation covered how these opportunities come about, typically through agreements between a token team, an exchange and the market maker, and what the day-to-day work looks like once a token is trading. The basic job is to keep prices orderly and make sure buyers and sellers can find each other, even when the market is too small to do that on its own.

Krogsgard said the idea of partnering with exchanges and project teams on brand-new listings fascinates him, and admitted it also sounds a little scary. That reaction fits the subject. A thin order book can be pushed around by modest amounts of capital, and a freshly launched token can swing hard in either direction. Pryor, whom the hosts describe as a smart investor and trader, walked through the main categories of risk and explained what the practice demands from a firm that takes it on.

The hosts were clear that the episode is educational material and not investment advice. Anyone considering a token that is being market made should do their own research first, since liquidity that looks healthy on a chart can disappear quickly. Ledger Cast is available on iTunes, Spotify, Google Play, Stitcher, YouTube and via RSS, and the show is produced in partnership with Brave New Coin.