The Future of Crypto Market-making: What’s the Role of Regulations and AI?

How are the increasing adoption of AI and ongoing discussions on regulations affecting the crypto market? All panelists express positivism and excitement about the crypto market in 2023!

The increasing adoption of artificial intelligence (AI) and the ongoing discussions surrounding regulations are two important factors shaping the future of crypto market-making. How will policymakers’ decisions affect the crypto industry? How is the crypto industry using AI?

A very enlightening discussion took place during the 8th European Blockchain Convention with Joseph Hall, Reporter at CoinTelegraph, Guilhem Chaumont, Co-Founder & CEO at Flowdesk, John Murillo, Chief Dealing Officer at B2Broker, Patrick Heusser, Chief Commercial Officer at Crypto Finance AG, Stef Wynendaele, Head of Commercial Strategy at Keyrock, and David Tunian, Head of Business Development at WhiteBIT.

How Is Crypto Market-making Different From TradFi?

In a cocktail party analogy, market makers are the party planner that manages the risks, provides the necessary support for participants to enjoy themselves, and handles the logistics of the event. They play a crucial role in maintaining order and stability in the market.

Market makers in the crypto industry are more open, transparent, and willing to cooperate compared to players in traditional finance. In TradFi, market makers operate in a highly competitive and fast-paced environment where speed determines performance. However, the crypto market is more decentralized and fragmented. Crypto market making is often offered as a service and the risks are shared among several different stakeholders. Market makers need to collaborate to manage risks and advance the market.

“I’d rather have a collaborative approach and not an “Us v.s.Them”. At the end of the day, the market will decide what is most efficient and the market will decide what’s most interesting to have on the balance sheets. So let the market decide, but we have to do it together!”
– Stef Wynendaele, Head of Commercial Strategy at Keyrock

The panel “Market Making is Key for a Crypto Market Recovery” at the EBC23.

Regulations Can Help Bring the Industry Forward

All panelists acknowledge the importance of regulations, but clarity, transparency, and optionality are the key elements that they hope regulations can bring.

“I’m actually looking forward to regulation and clarity. It will at least be clear about what are the rules and the boundaries. It will help the market be more liquid and more people be comfortable going in. I’m really looking forward to it!”
– Patrick Heusser, Chief Commercial Officer at Crypto Finance AG

Despite being supportive of regulations, Patrick believes that there should be two parallel ecosystems in the crypto industry. One is the decentralized ecosystem where users can trade any token without restrictions. The other is a system for users who may not want to manage their wallets. He envisions that the decentralized system will be the innovative one that helps make the traditional system more efficient.

“In the end, it would be very Darwinian. The actors that are bad and not transparent will be mechanically excluded from a business perspective and those who bring value will obviously have more business and they will make progress.”
– Guilhem Chaumont, Co-Founder & CEO at Flowdesk.

How Are Market Makers Approaching AI?

When looking at the quantitative market-making and technical perspective, a lot of machine learning and AI technologies have been implemented for years. 

Patrick also views AI as a potential support for crypto businesses as the technology can be used to follow updates on multiple protocols, monitor blockchains, and evaluate risks in smart contracts, which are time-consuming and challenging if done manually.

However, Guilhem thinks it’s very unlikely that AI will disrupt the crypto market-making in the next five to ten years. The crypto market is heavily fragmented and there’s a lack of ground infrastructure and a high necessity for less scientific discussion and cooperation, so he thinks it’s hard for AI to make groundbreaking innovations in the short term.

Watch the full panel to learn more about the future of crypto market-making!

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