Binance has published a guidelines and red flags for the issuers of crypto tokens as it intends to double down on curbing market manipulation and amping up transparency. On Wednesday, Binance directed token issuers to disclose the details of their relationship with market makers.
Essentially, Binance is forcing crypto firms to show who they might be paying to trade their tokens. The aim is to eliminate instances of pumping up tokens to fake popularity and value.
“Ongoing monitoring of on-chain activity across the industry suggests that while most market makers operate responsibly, certain behaviors can signal elevated risk,” the exchange said.
Understanding market makers
Market makers can be defined as fintech firms or professional traders that stay active on an exchange 24/7 to match buyers with sellers. As part of their job, market makers make it possible for traders to trade instantly at a stable price instead of waiting for another investor to show up and match the order.
These entities provides liquidity to crypto trading pairs by posting both buy and sell orders on an exchange.
Binance’s red flags against market makers
Binance pointed out that market makers are often involved in the launch events of tokens. At the early stage listings, market makers are meant to support liquidity and reduce risks of volatility.
“The key role of a market maker is to maintain liquidity, stabilize prices, and support orderly trading by balancing buy and sell orders. However, not all market makers operate responsibly,” Binance noted.
The exchange noted that market makers identified to be carrying out one-sided trading behaviours, coordinated sell-offs, and price pump-and-dumps will be red-flagged on the exchange.
For token issuers, Binance said, a thorough assessment is imperative before choosing a market maker to engage with.
Analyzing the depth of liquidity that a market maker brings to the table is a key aspect that should be analyzed. Identifying irregular trading patterns can also safeguard token issues from partnering with suspicious market makers.
“Understanding how market makers influence liquidity can help you better assess market conditions before engaging with a market maker – especially in newly listed assets and fast-moving markets. Before engaging with market makers monitor price behaviour relative to volume, evaluate market balance, and avoid making rushed decisions,” Binance noted.
Token issuers directed to go for transparency
The crypto market is rife with over 45 million tokens as of Wednesday, data by CoinMarketCap showed at press time. Everyday new tokens are infused into the $2.45 trillion market, making is sometimes confusing for investors to put their money on the right token.
Binance has urged token issuers to double down on maintaining transparency in the market in order to develop trust among genuine investors.
“A successful token launch or listing depends on transparent token management, responsible market practices, and strong governance frameworks,” the exchange pointed out.
The largest crypto exchange by volume, Binance has asked new crypto projects to strictly stick with decided token release schedules. The exchange has further advised Web3 projects to apply due diligence while selecting market maker partners.
“Agreements with market makers should explicitly outline roles, trading parameters, compliance obligations, and safeguards to mitigate risk,” the exchange noted.
As per a Chainalysis report, over $2.57 billion were identified to be tied to wash trading activity. Owing to the ever-increasing risks of market manipulation, the tightening of oversight is the need of the hour, Binance said.