This episode explores the evolving role of market makers in the cryptocurrency space, particularly focusing on their practices during and after the 2017-2018 ICO era. Against the backdrop of this historical context, Kain Warwick, founder of Infinex app and Synthetix, details how market makers initially focused on providing liquidity but later exploited market inefficiencies for profit, often manipulating prices. More significantly, the discussion pivots to current market-making practices, highlighting the use of call option structures and large token loans, which can lead to perverse incentives and market manipulation. For instance, the incident involving Binance and the Move token is analyzed, illustrating how a market maker netted a substantial profit by exploiting a lack of regulatory scrutiny. Warwick argues that a high fully diluted valuation (FDV) compared to market cap can indicate unsustainable token structures, and he advocates for greater transparency and disclosure to mitigate these risks. What this means for the future of crypto is a need for a balance between permissionless innovation and the establishment of clear norms to prevent market manipulation and protect investors.
