- November 22, 2024
- Category: Crypto, Market Making
Meme coins are everywhere in the crypto world, from Dogecoin’s rise to Pepe’s explosive popularity. These kinds of fun, community-driven tokens went from internet jokes to serious players in crypto. But behind all those memes and hype lies a harsh reality: a lot of these coins battle with liquidity, price stability, and consistent trading volume.
That’s where crypto market making steps in: In the case of meme coin projects specifically, it is not about earning on the spread between bids and asks but rather building solid ground for trading. So, many meme coins wouldn’t be tradable at all without professional market making services, and on top of that, they would lose all their charm as fast as they effortlessly get popular.
At Yellow Capital, we’ve had a front-row seat to watch professional crypto market making take a meme coin on a completely different trajectory, continuing to be available, liquid, and thrilling to traders. Let’s break down how this works and why it’s critical for meme coins.
What Are Memecoins?
Meme coins are a product of internet culture, humor, or trend. While utility tokens have specific use cases, memecoinsgenerally depend on community support and go-viral movement. For example, Dogecoin started off as a joke and went on to a cultural phenomenon, while Shiba Inu branded itself as the “Dogecoin killer.”
Most meme coins are highly speculative by nature. Rarely, if at all, can clearcut use cases be seen in them; therefore, hype and community sentiment tend to be the most important supports for their valuation. This is what really makes them so volatile: They can be very exciting but also phenomenally risky for investors.
Another common trait of memecoins is that a single token is very cheap. Circulating supplies are usually in the trillions, which means prices are normally fractions of a cent per coin. That lures retail investors who dream of “owning millions” with a small investment. This advantage immediately gets dampened by a serious disadvantage: low liquidity and spreads can make trading inefficient without professional support.
Why Meme Coins Need Professional Market Making Services
Liquidity Challenges
Liquidity in many meme coins is usually an issue since their nature is highly speculative. While this may result in waves of traders during the hype of the early stage, the cooling down results in dried-up liquidity, leaving order books thin and spreads wide. This makes it really frustrating to trade, which in turn discourages new investors.
Liquidity in meme coins is aided by their market makers, even in periods of quiet. They keep deep order books and peak activity, making it easier for traders to buy and sell without huge price impacts.
Price Stability
For meme coins, volatility works both ways. While each price bounce fuels publicity, extreme fluctuations in price tend to drive off potential investors. For instance, if a whale were to dump a large position, the price could crash and ruin trust in the token.
Market makers manage this risk by immediately readjusting their strategies. By utilizing algorithms to voice an equal balance of buy and sell orders, price stabilization is achieved without affecting organic market activity.
Trading Volume Support
Exchanges have listing and retention requirements for tokens that include minimum trading volume. Meme coins that fail to reach such thresholds are likely to be delisted and see their visibility and market presence utterly ruined.
Professional market making services ensure that a meme coin maintains pretty good trading volumes. As a matter of fact, this keeps it in good books with the exchanges while it also attracts newer investors by showing healthy market activity.
Key Activities of Market Makers for Meme Coins
Professional meme coin market makers apply different methodologies and practices aimed at enhancing liquidity, price stability, and trading volume across different exchanges. These are tailored to meet the unique challenges and dynamics of meme coins.
Liquidity Provision Across Multiple Exchanges
Memecoin often trade on multiple centralized and decentralized exchanges (CEXs and DEXs), each with its own liquidity needs. Market makers ensure liquidity is distributed effectively across these platforms to prevent fragmentation and reduce arbitrage opportunities.
For instance, if some certain memecoin is traded actively on the exchanges Binance, KuCoin, and Uniswap, then the market maker will be watching the order books in each. They adjust buying and selling orders accordingly to ensure that there is consistent liquidity, enabling traders to move smoothly across the exchanges they are operating on without finding huge gaps in prices.
Building Deep and Balanced Order Books
Depth of the order book is crucial for any smooth trade on the exchanges. A shallow order book would be very prone to slippage, where even small trades push prices significantly. To avoid this problem, market makers populate order books with buy and sell orders across different price levels.
Imagine the trader wants to sell $1,000 worth of some memecoin. Absent any market making activity, perhaps this trader would have to execute his sell against multiple price levels, thereby driving a worse price for his trade. The market makers prevent that because they fill the gaps, maintaining tighter spreads, along with better price execution for all participants.
Managing Volatility Without Manipulation
Meme coins might have the reputation of being super volatile, with price action heavily skewed by trending on social media, influencer hype, or community movements. Market makers try to soften fluctuations by dynamically adjusting their strategies.
For instance, the market maker can temporarily widen the spreads against sharp reversals if some viral tweet causes a sudden price spike. When the market normalizes, he can always narrow the spreads to stimulate busy trading at a fair price discovery.
Meeting Exchange Requirements for Listing and Retention
In many exchanges, a minimum quantity of trading volume or liquidity is required to be maintained by tokens to remain listed. Failure to meet this may result in delisting, which harms visibility and market confidence in the meme coin.
Market makers help memecoin projects meet such thresholds by ensuring consistent trading activity. They may increase liquidity during low activity or build up their strategies during peak trading hours so that volumes do not show extreme variation.
Challenges in Market Making for Meme Coins
While market making is crucial for meme coins, it also does not come without challenges. Meme coins have a set of unique risks and difficulties, none of which can be taken care of without competent planning and implementation.
High Volatility and Speculative Trade
Meme coins live on hype, but that means extreme bouts of price swings, too, making market making a challenging one. It takes only one whale trade or social media mobilization to throw off the liquidity balance, and thus, market makers must adapt fast.
For example, the price of some meme coin can double in a couple of hours, only to fall back to its previous position or far under it. The market maker has to work his way out of such situations without overcommitting on one side of the market, which may lead to possible losses.
Community Expectations
Meme coins have historically had very vocal and strong communities that scrutinize each and every market movement. If the prices remain too stable, the community will push and demand growth in any way they can, while if they swing too wildly, the same community will lose confidence in the stability of the project.
Crypto market makers must operate transparently and ethically, ensuring their actions align with the project’s goals and community sentiment.
Navigating Low Utility and High Hype
Unlike utility tokens, meme coins often have little to no practical use case. This makes the trading activity of the latter asset class highly dependent on short-term hype cycles. One of the biggest challenges with market making is: how do you support liquidity during such hype cycles—and sustain it afterward?
For example, after a major promotional campaign ends, trading volume may crash. That has to be planned for by a market maker, maintaining enough liquidity to keep the market alive without overextending resources and breaking any rules and norms.
Meme Coins and Crypto Market Making Success
Croak ($CROAK) by eFrogs
Croak ($CROAK) is a meme coin released by eFrogs, the leading community on the Linea blockchain, and thus isspecially created to bring users into the “Pond”. It represents carefree and vibrant vibes from the meme culture.
The eFrogs developed and executed a tokenomics strategy to make sure that not only would it have a successful launch but also a sustainable trading environment:
75% for DEX Liquidity: Allocating a significant portion of tokens to decentralized exchange liquidity pools to facilitate smooth trading.
15% for eFrogs Airdrop: Community rewards, popularisation, and distribution of the tokens through the community.
5% for Team Wallet: Building a treasure for the project to stay sustainable and maintain development and project initiatives.
2.5% for Marketing Wallet: Funding promotional activities to increase awareness and adoption.
2.5% for Listings Wallet: Provide resources for exchange listings and related expenses to be available to broader crypto audience.
This structured approach, combined with professional market making services, has enabled $CROAK to maintain liquidity and attract a growing user base.
Pepe Coin ($PEPE)
Pepe Coin is a meme cryptocurrency inspired by the famous “Pepe the Frog” meme. It became successful due to continuous hype on social media and heavy involvement within its community, but speculation inherent to such tokens brought high volatility.
Professional market making was essential in the early days to establish a market for $PEPE. Market makers ensured order books were deep in decentralized platforms such as Uniswap but also centralized exchanges like KuCoin, allowing traders to finally join in without suffering from excessive slippage or wide spread.
The consistent liquidity and trading volume of Pepe Coin also allowed it to meet the listing requirements on majorexchanges, thereby placing it in front of more retail investors.
Floki Inu ($FLOKI)
Inspired byElon Musk’s dog, the cryptocurrency Floki Inu has managed to evolve from just a meme coin into an extensive ecosystem, featuring DeFi, NFTs, and even the metaverse. Also, to firm up its expansion, Floki Inu contracted professional market makers to help smooth its trading environment in various places.
Market makers provided liquidity for exchanges such as Binance and KuCoin. This ensured that $FLOKI could maintain tight spreads while continuing to see steady trading volume. During its massive marketing campaigns—including a high-profile Times Square ad—market makers managed increased trading activity, preventing price disruptions and ensuring accessibility for new investors.
The ability of FLOKI to be in the market for this long shows that professional market making can actually help the meme coins to enjoy longevity in the face of a competitive volatile market.
In Conclusion
Meme coins like CROAK, PEPE, and FLOKI are the best examples of what professional crypto market making can do in an unpredictable yet fast-moving crypto market. Market makers who can provide liquidity, maintain price stability, and support trading volume are the components necessary for meme coins to survive or thrive in both bull and bear markets.
For projects that seek long-term development, the work with professional crypto market makers provides a stable and secure trading environment. Such a basis not only attracts and retains investors but also helps meme coins get some more political capital in the ever-competitive space. The bigger the market of meme coins gets, the more one can truly appreciate how relevant professional market making has become. By paying close attention to liquidity and stability, projects will be better positioned to stand out and achieve lasting success.