Why your token needs a market maker?

So your tokenized project has everything in order to be listed on an exchange. You have spent a considerable part of your budget on marketing, have a few crypto advisors, have raised capital through pre-sales and there’s an exchange willing to list your project for some fee. So you go for it.
As time goes by, you might notice there are big challenges with respect to the trading of your token. Prices are volatile, the spread is too large…There is a sense that the investors are running away and the price is continuously dropping. Due to the low volumes, new investors are reluctant to buy in and a snowball effect begins. That’s why liquidity matters.
This is a depiction of a very common scenario we encounter for many unadvised first-time project founders. However, there's a solution for recently-listed tokenized projects that still lack volume. It is called market making


The market is essentially two sided. One is composed of market takers such as investors, day-traders and speculators – the side that takes liquidity from the market. This side is driven to making a profit by directionally betting on price action. Market takers consider two things very important: Liquidity (being able to execute their trades) and Immediacy (doing it as quickly as possible). Market makers are on the other side acting as an “invisible hand”. They are the ones stabilizing prices, by filling the order book on both sides and closing spreads. 
Market makers usually make their profit by operating the spread. In low liquidity markets, spreads tend to be higher and market makers can profit there. Below, we describe a hypothetical order book to illustrate this.. 
The “ask” price is what a buyer needs to pay in order to get the amount of tokens desired, while the “bid” price is what a seller will get by selling that position. As we can note, someone can put a bid (buy) at 96 USD and ask (sell) at 99 USD, being the first position on both sides of the orderbook. If both trades were to be executed (meaning at some point someone was willing to take the 96 USD bid, and another person was willing to take the 99 USD ask), this agent would book a 3 USD profit (excluding trading fees) with “virtually” no risk. 
This is something that market makers commonly do. Using advanced quantitative algorithms to post multiple orders in a short period of time, the market maker is able to operate these kinds of situations. 


While top crypto currencies have enough organic trade volume for market makers to compete against each other and provide liquidity out of their own willingness (seeking profit), new listed tokenized projects often do not have the necessary organic volume to entice market makers and will often fall in a “liquidity trap” due to lack of liquidity provision. It is a “chicken and egg” problem: because there is no liquidity, new investors are unwilling to take directional risk scared by the future impossibility of realizing their positions, and there is no liquidity because potential investors are scared away. 
A tokenized project needs other players like investors and exchanges to contribute to the liquidity of the token. At the same time, the exchanges and crypto investors want some assurance of a liquid market in order to participate. As we can note, it’s a vicious cycle.
To list on an exchange, the tokenized project can be charged as much as a 7-digit fee. The crypto exchange also doesn’t want a “ghost town” token listed on their platform, with no trading going on, since that looks bad for them. 
Investors see illiquid markets as an indication of a market that can be potentially very hard to exit and as a symptom of low user interest. Low liquidity is the biggest red flag in crypto, scaring off everyone who is a potential buyer and sometimes even causing panic selling. Furthermore, if thereis strong buying or selling pressure in an illiquid market, prices can move exaggeratedly, creating a problem by attracting some clueless investors that are afraid of missing out on a good opportunity, a FOMO style buy-in. That leads to an unsustainable price level with little support, creating a highly volatile market with constant pumps and dumps which also raises alerts for investors and users.