Market Making | Notion

Requirements for Effective Market Making

Token Metric	Minimum MM Requirements
Daily Trading Volume	10-20% of volume (e.g., $100k for $1M daily volume) [5][10]
Order Book Depth	2-5x average trade size (e.g., $5k depth for $1k avg trades) [3][8]
Initial Funding	$250k–$1M (for tokens with $10M–$50M market caps) [5][12]

For INTERSPACE (initial 235.5M circulating supply):

At $0.085/token: MMs need ~$500k–$1M in capital to cover 1–2% of daily volume and maintain 5–10% market depth [6][12].

Algorithmic Trading

Adaptive algorithms adjust spreads based on volatility. For a token with 30% monthly volatility, spreads widen from 0.2% to 0.5% during high volatility [5][8].
Risk Management
- Delta-neutral hedging: Offset inventory risk using futures/options [5].
- Circuit breakers: Suspend quoting if prices move >5% in 5 minutes [8].
Incentive Alignment
- Fee-sharing models: MMs earn 0.1–0.3% of trade value [10][12].
- Vested token rewards: 1–5% of total supply to MMs locked for 6–12 months [9][13].

Data sources: Comparable token performance with/without MM support [3][9][12].

Manipulation Risks

Avoid loan option models where MMs borrow tokens at fixed prices – these incentivize price suppression [1][10].

Solution: Use fee-based contracts instead [12].
Liquidity Fragmentation

Tokens listed on 3+ exchanges require 30% higher MM capital to synchronize prices [4][7].
Regulatory Compliance

MMs must avoid wash trading – projects should audit MM activity using tools like CoinAPI’s trade surveillance [4][12].