As you probably noticed there’s a new token at DEX, trading against many other tokens with quite a substantial volume, called Liquid. It is being airdropped to the community weekly (the last airdrop is going to happen today). The goal behind the token is to provide a mechanism for market makers and issuers to cooperate in a more streamlined way.
That’s how it works. Say you issued your ICO token, completed a successful ICO, and want your token to be liquid at DEX (some people forget that there’s life after ICO, but let’s suppose you’re not one of them). People should be able to buy and sell your token at DEX, it doesn’t happen by itself, someone should place those buy and sell orders and maintain the order book. You don’t want to mess around with DEX API (after all you wanna build your product, not code some trading bots), so you need a market maker.
There’s a pool of market makers working with DEX, who can provide that service to you. Liquid token is just a payment instrument which facilitates your cooperation with them. To start market making for your token you do the following:
- Agree on the amount of the Liquid you need to send to the market maker to pay for the service.
- Buy this amount of the token from the open market. Thus there’s always demand for the Liquid token, which pushes its price up.
- Transfer this amount to the market maker.
Then the market maker does the following:
- She burns 10% of the received token to reduce the token supply.
- Converts part of the amount into BTC, Waves and other tokens you want to have your token trading against.
- Starts providing liquidity for Token/Waves, Token/BTC, Token/Liquid…. markets
As you can see this is a very simple mechanism. We get guaranteed liquidity for good tokens at DEX at the same time creating a new liquid instrument, which should appreciate in value over time. It’s a win/win, and once we have smart contracts this mechanism can be further upgraded to include some kind of automated, Bancor style, market-making.