Building Market Making 2.0 To Give More Control to Projects

Transcript

foreign good afternoon everyone my name is David and before I introduce myself I would like to ask you some questions who in the room has already issued a token we have some talking issuers a couple of them and who has ever talked or dealt with Market maker or Market making activities not many people couple okay cool thank you my name is David I'm a running flodesk for Asia I'm based in Singapore I'm I'm a French as you can hear flodesk is a crypto Market maker that

was started in 2020 and what we are doing is connected connecting taken issuers to exchanges but let me tell you why I'm here I'm here today because all along my career I try to fix inefficiencies in a world of trading I started as a Trader in a in the large Banks following what I I built a company a fintech company I've been an entrepreneur for 10 years First In traditional finance and then two years ago I joined flodesk in Asia to start and to scale Market making um so today I will share with you what is market making why you will most likely come across Market making needs in your token journey and and what is it

we are doing so what is liquidity liquidity is a core is a core concept around Market making liquidity very simply is the ability to buy or sell an asset in a market without moving the price by too much so you can imagine a very busy Market maybe some of you are going to south of France at the moment is very busy it's very liquid there is a lot of buyers a lot of sellers but imagine the same place in the winter is very dull and there is not enough bios for sellers Etc this is what liquidity is and we are trying to increase the liquidity in the market to make adoption better as a token insurer or the market

participant in the the biggest the biggest pain point you could face is low liquidity so in the current times we are facing very low and decrease in liquidity you can see in the charts what happened after FTX collapse and all the scandals in 2022 uh the top chart is the number of Bitcoin you can buy in a market without moving the market by more than two percent so one year ago it was about twelve thousand Bitcoins nowadays it's six thousand so it decreased by 50 percent uh as a result of that the intraday liquidity and volatility of Bitcoin as as uh has grown almost doubled so liquidity low

liquidity means I spread and and more expensive Trading Los loss of control is the second uh uh aspect of Market making of of trading your asset in a digital ecosystem that you should be concerned about we will see that in a minute conflict of interest is when you give a lot of tokens to somebody who is going to dictate what happens to those token that requires a lot of trust and as you know in a permissionless world trust is um trust is is Center Central and of course as per as for any product cost of Market making activities is a is a concern and

and it's a it's a subject of of Interest now why is Market making and how is it making things better for those topics so on the left on the left side you see a token or an asset that is not ideally covered by a biomarket maker so the price action is a bit erratic you see the order book is a bit depleted with only a few and rarely distributed orders in the book and very important to crypto the same assets as a different price on different venues which is a major concern for for the issue but also for the for the users

so on on the right side you see uh you know when the market maker is doing a good job you see the price action is much smoother the other book is is uh at all time is well distributed and nice and very important the price is harmonized between the different venues so now that we have that we have seen what is market making and how it can help you we are going to explain two different model of Market making and why we did flow desk which is a market making 2.0 so what we call here Market making 1.0 is basically the traditional Finance market makers coming to crypto

with the same model so most of it is prop trading SO trading your proprietary assets and capital uh uh to make money so it's prop trading activity most of the time in crypto there is also a loan that the token project is going to to attribute to the market maker and sometime with a with a call option that makes uh now if we think about the revenue model of those activities um the market maker in such a model is making money by trading so prop trading the they get all the risk but also all the rewards of trading and also the call option or so the benefits from the token price going up

uh now we we looked at it and we said okay why can this be improved so the first thing to note is that compared to traditional Finance the crypto world is very very fragmented at the moment we have about 600 crypto exchanges that are trading tokens in the market for about 20 000 tokens so even some very small market cap project are getting listed on exchanges sometimes on multiple exchanges sometimes the same token is traded on different venue against different different collateral when usdt in eth in Bitcoin so all of that creates different

needs compared to traditional Finance and and we thought okay how can we improve things so the first thing we wanted to improve is how to improve the quality of service and to the first thing that is very important get back control so you know it's a link with every almost every speaker in this in this conference talking about private key you know you control your asset you know what's happening so with with uh we wanted to to put that back into the center of the product so get the control of your assets and then very important when it comes to trading whether it's crypto but also traditional Finance of course the to try to minimize and control the

conflict of interest so that's when we came up with what we call Market making as a service so of course it's inspired by the tech subscription model so in our model you can see the token issuer or the exchange renting out an infrastructure trading algorithm but also physical Traders against uh and and the cost of that is not unknown is very certain it's very uh concrete it is a monthly subscription so you know exactly what you spend and by doing that uh we think it's it's a fairer approach to to Market making

now if we draw a little uh very simple schema to to understand what's happening in practice the token issuer is going to open an account whether it's a Dax or on a centralized exchange and fund this account with their own tokens and capital both side of the of the book and through desk as a market maker or any Market maker doing Market making as a service by the way is going to do the trading and control the liquidity the other book The the capital the capital rotation the the movement of collateral between the different exchanges by API key so we will own the API key but we the API key doesn't give us the

right to withdraw or to touch the money so the money is always under your control with your keys uh um so that's the fundamental difference now I mentioned The decentralized Exchange part so very important to us we are connected to um about 100 100 exchanges the reason for that is because as I said before there is a lot of exchanges it's very very fragmented and we want to to cover and to have the biggest reach possible so why decentralized Finance is getting more and more important it's because of all the scandals that happened last year right we saw that nine months ago

the market share of decentralization was just seven percent and it grew to 20 today so as a market maker if you want to be having a meaningful impact on liquidity and trading of tokens you want to to be connected to decentralized venues and it's what we are doing at flow desk let me share a quick word on technology because I know it's a some of you may be Builders and tech people in the room so to build something very scalable with a bigger switch we are fully based on the cloud with three main clusters at the moment we are connected in North America in Europe and also in Asia Pacific

we also implemented a private backbone private backbone is a Ultra fast connection that we own ourselves to um to trade uh trading pairs that are requiring much faster speed such as perpetual and derivatives and as I said before we are connected to 100 venues which make us a very large reach and that give us in turn the ability to cover a wide range of tokens even very small market cap for a small price it make us affordable as well now you are you may have have heard a

couple of of Point link pointing to compliance compliance has been always Centric to the company we believe it's a big need in the market and myself coming from traditional finance and banks that are now over regulated you're coming to crypto is a bit of a shocker you're like wow so a metric that is very striking Bloomberg study showed that 56 percent of erc20 tokens have experienced insider trading uh activity when they launch on the top three centralizations so that's a that's a crazy number if you think about it so how we tackle this we tackle this by being proactively

talking to all the The Regulators we we all the jurisdiction we cover so we started in France we are very close to AMF and Bong de France we are covered with Mika in Europe we are talking to Ms in Singapore and and we're gonna do that everywhere we go to keep compliance at the center of what we do so as we conclude this quick note on Market making is a sneak peek of what we think about the market we think that we are currently in a bit of a law 2022

2023 it's a low point we know why we all know why we're here now we see some positive momentum at the moment we think that's gonna continue to to happen so you know moderate growth in a low volatility environment and we think that the next Bull Run will happen after that so that's a common uh shared view what is interesting and what we position the company for is that we believe that the tokenization of real world assets and securities is going to boom and to explode in the Years coming to 2030.

so this is the purple the purple part and this is what we are bracing ourselves for at redesque we we want to to to be there to to tackle this exponential growth of tokenized Securities and real world assets um so I hope you enjoyed this quick overview of Market making and um I would invite all of you to the booths on the first floor where you can have some real world liquidity AKA drinks thank you [Applause] thank you