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  • in Academy
  • 11 min read

Liquidity Mining in Hummingbot vs DeFi - Part 2

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While we wrote the original whitepaper and coined the term “liquidity mining”, the concept recently became popularized in DeFi with the emergence of Balancer, Curve.Fi, and, despite being late to the game, Uniswap, who recently introduced token distributions to the original Automated Market Maker (AMM) concept.

Our version of liquidity mining and that of DeFi share the same objective: finding an efficient way for token issuers and protocols to provide liquidity for digital assets. Token liquidity has long been a problem in the cryptocurrency market due to the large and growing number of token assets, exchanges, and exchange protocols, meanwhile there has only been a limited number of sophisticated (and expensive) hedge funds and market makers that could serve the markets.

Hummingbot Miners and AMM liquidity mining both take a decentralized, crowd-sourced approach to market making. They allow the general public, not just the professional market makers, to participate in providing liquidity for digital assets.

One important way in which they enable this is by creating frameworks for compensating a decentralized group of market makers.

  • in Academy
  • 12 min read

What is Inventory Risk?

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Hello again Hummingbot community!

Today we will start to talk about what I consider the most important factor that is part of all types of trading operations: risk and risk management.

As one of the biggest investors of our time once said:

"Risk comes from not knowing what you're doing." ~ Warren Buffett

Source: https://www.azquotes.com/quote/40644

All kinds of financial operations have varying degrees of risk, and market making is no different.

While it seems more exciting to imagine and project future gains and fantasize about being the next Warren Buffet, the reality and less glamorous part of investing, and arguably the most important part, is trying to figure out what can go wrong and how to mitigate losses that can result.

There is a lot to cover about risk and risk management, but today we will focus on one major risk related to market making: inventory risk.

Here is what we’ll cover in today's article:

  • What is inventory value?

  • What is inventory risk?

  • How to mitigate inventory risk with Hummingbot

  • in Academy
  • 13 min read

What is Cross Exchange Market Making?

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Welcome back to our Educational Center, where we aim to help you to learn more about market making, arbitrage, and everything related to algorithmic trading.

Today we will talk about one of the core strategies that can be used with hummingbot: cross-exchange market making.

The objective of this article is to help you understand:

  • What is the cross-exchange market making strategy?
  • What is the difference between cross-exchange market making and arbitrage?
  • How is cross-exchange market making different from pure market making?
  • Why and when should I use this strategy?
  • in Academy
  • 9 min read

What is Market Making?

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Welcome to Hummingbot Academy!

If you reached this page, there is a high probability that you have been asking one of these questions:

  • What is a market maker?
  • What do market makers do?
  • How can I become a market maker?
  • How do I create a market making robot?

Then you are on the right place!

Here at Hummingbot, our goal is to help you learn more about market making and how to use our free open-source robot to implement your own strategy.

  • in Academy
  • 14 min read

Liquidity Mining in Hummingbot vs DeFi

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The need for liquidity is as constant a theme in the cryptocurrency market as are death and taxes. However, as we have previously written in other blogs (such as this one, the way in which token issuers and exchanges procure market making in the crypto market is broken. The reliance on high cost, price gouging crypto market makers is just not sustainable or scalable. This led us to propose the concept of liquidity mining and launch the Hummingbot Miners platform for decentralized and crowd-sourced market making.

We have been encouraged to see other projects experiment with community-based liquidity provision, most notably in DeFi with automated market makers (AMM). Whether it’s called “liquidity mining” or “yield farming”, there has been a surge in activity in DeFi as protocols such as Compound, Synthetix, Balancer, Ampleforth, and Loopring aim to propel wider market adoption by rewarding their communities for providing liquidity.

With this heightened interest in liquidity mining, we explain in this blog how our Hummingbot Miner platform fits into the landscape. We also compare and contrast liquidity mining in the order book model popularized by centralized exchanges versus the automatic market maker (AMM) model that is prevalent in DeFi.

  • in Academy
  • 3 min read

My Take on Market Making: Understanding Profits and Risks

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By phgnomo

The essence of a market making strategy hinges on the prompt fulfillment of both buy and sell orders. Typically, the price movement of an asset follows a pattern where it oscillates within a certain price range, occasionally deviating from this range to begin an upward or downward trend, before eventually settling into a new range at a different price level.

Optimal Spread in Market Making

Market making profits primarily occur when prices fluctuate within a range. To capitalize on this, market makers must identify the optimal spread— the difference between the buy and sell prices—where the market price oscillates from the lowest to the highest points as illustrated here:

  • in Academy
  • 12 min read

Mapping the Crypto Market Maker Landscape

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Summary

Market making is an indispensable but misunderstood sector of the crypto industry. Ever since we open sourced Hummingbot, we've learned a lot about market making from professional market makers who use Hummingbot, as well as from token projects who hire market makers.

In this post, we provide information that may help projects and exchanges who are considering hiring a professional market maker:

  • Part 1 lists questions that prospective clients of market makers may wish to ask
  • Part 2 provides a directory of crypto market makers around the world
  • in Academy
  • 6 min read

Demystifying Liquidity Mining Rewards

We explain in more detail the methodology and mechanics of liquidity mining, a data-driven, objective methodology for quantifying market maker performance.

In our liquidity mining announcement, we introduced a data-driven, objective methodology for quantifying market maker performance. This serves as the basis for determining fair and open compensation for market makers. So how does it all work? In this post, we explain in more detail the methodology and mechanics of the platform.