Blockstack raised $23 million in its registered token offering in September, including $7.6 million from investors in Asia.
For a one-time setup fee of $100,000 and a monthly payment of $20,000 for six months, GSR agreed to “provide services related to increasing the liquidity” of STX, as well as to analyze market conditions. Blockstack will also lend $1 million-worth of bitcoin and ether with zero interest to fund the trading.
According to a separate agreement, GSR will trade STX using its proprietary trading bot, provide Blockstack with daily reports on the STX market activity, analyze the market conditions and seek new exchanges Blockstack could approach for listings. All these activities should happen outside of the U.S., the document reads.
Hiring a professional market maker to provide liquidity is a common practice on the legacy markets and has become one for the crypto markets, too, says Eric Wall, a former blockchain lead at trading tech company Cinnober.
“Market makers serve a crucial role in thinly traded markets and are common everywhere where there’s trading, be it NASDAQ or Bittrex,” Wall said, adding:
“They provide a base-line of liquidity where there otherwise would be none. It’s essential in order to give investors the opportunity to enter and exit an asset without being too dependent on being matched with a seller or a buyer at that exact time same time.”
Without such market participants, the volatility of crypto tokens can soar when there are too few actual orders. That can turn people away from trading a token and “create bad publicity for the issuer,” Wall explained.
The company’s CEO, Muneeb Ali, told The Block that it was a “long-term payment” meant to incentivize Binance to keep STX listed “over many years.”
Muneeb Ali (right) image by Brady Dale for CoinDesk
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Author: Anna Baydakova