MMaaS vs Proprietary MM

Differences between Proprietary Market Making (PMM) and Market Making as a Service (MMaaS)

Introduction to Market Making Models

In the realm of market making, there are primarily two models that stand out: Market Making as a Service (MMaaS) and Proprietary Market Making. This document delves into a detailed comparison of these two models, highlighting their advantages and disadvantages. Furthermore, it elucidates why Enflux has chosen to adopt the MMaaS model over the Proprietary Market Making approach.

Comparative Analysis: MMaaS vs. Proprietary Market Making

1. Proprietary Market Making

In the Proprietary Market Making model, tokens are loaned to the market maker, who then provides liquidity, often in the form of USDT. The market maker endeavors to generate profits through trading activities. This model has several key features and implications:

• Token Loans: Tokens are lent to market makers who, in return, provide deep order books and tight spreads.

• Buyback Rights: The market maker possesses the right to repurchase tokens at a predetermined price.

• Profit Potential: Market makers stand to gain significantly if the token's value increases.

• Profit Sharing: Trading profits may either be shared with the project or kept solely by the market maker.

• Incentives: This model primarily incentivizes market makers to focus on increasing token prices for higher returns, often neglecting the health of the market spread and order book.

• Token Liquidation: Upon expiration of the token option, market makers are allowed to sell tokens in the open market.

However, this model is not universally suitable, especially for smaller projects due to its focus on larger cap tokens.

2. Market Making as a Service (MMaaS)

The MMaaS model involves market makers trading on behalf of clients using trade-only API keys. Key aspects of this model include:

• Custody and Control: Clients retain full custody of tokens, setting clear liquidity objectives.

• Transparency: This model offers greater transparency and insights into liquidity compared to proprietary market making.

• Resource Requirements: Projects must supply both the base and quote assets.

3. Comparative Assessment

While the Proprietary model might be suitable for certain projects, it is not a one-size-fits-all solution. Projects need to fulfill specific criteria set by Market Makers, such as organic volume, market cap, and strong fundamentals. It's crucial for projects that qualify for this model to be aware of its potential downsides:

• Price Manipulation Risk: The incentive to elevate token prices might mislead retail traders.

• Market Health Negligence: The lack of motivation for market makers to foster a healthy trading environment.

• Retail Dumping Hazard: The risk of market flooding with tokens post-expiration of the token option, impacting retail traders.

• Profit-Centric Approach: A focus on profit generation that might come at the cost of fair trading practices.

Enflux's Approach

Enflux is committed to assisting projects by providing transparent and collaborative market making solutions. By opting for the MMaaS model, Enflux ensures a balance between maintaining high-quality liquidity and safeguarding the interests of its clients.

Feature	Proprietary Market-Making	Market Making as a Service
Costs	% of tokens lent out + call option for MM	Monthly retainer
Liquidity management	MM has full control, lower quality	Higher quality liquidity
Control over tokens	No	Yes
Transparency	No – black box trading	Yes – dashboards
Market-maker’s incentive	Token price and P&L generated from trading	Market-making performance

Enflux aim to help projects by providing transparent and collaborative market making solutions.