D00009 - Provide Inventory For Top Tier Market Maker

Author(s) - Olivier

Category - Token liquidity, volume & DAO diversification

Summary - Approve a mandate for $1 million worth of OPN from the DAO to be provided as inventory for market making purposes, as a way to unlock bigger exchanges.

Motivation - Following up from the initial trading markets provided for trading OPN, the team has been exploring ways to steadily increase tradability & access for the OPN token. Specifically in more retail-friendly avenues and globally renowned exchanges.

In these talks, the topic of liquidity and market making has brought forward the same topic every time: the requirement for higher liquidity and volume. Bigger exchanges (understandably) get nervous when listing a smaller cap coin as this can have significant price & supply shock, leading to significant price volatility. That’s why exchanges want the approval of a significant market maker with deep liquidity that can guarantee a smooth trading experience.

In short, for OPN to be listed on larger exchanges, deeper liquidity and a stamp of approval from a tier 1 market maker is needed. We have had several conversations with prominent market makers, who are willing to provide this service, starting the moment we are listed on a new exchange.

Context about market makers

In the past most market makers typically worked on a retainer basis, providing healthy trading markets in exchange for a flat monthly fee. These days, nearly every prominent market maker operates with a loan strike option, essentially loaning the inventory while reserving the right to turn this loan into a (partial) purchase at an agreed upon price, usually close to the market price at the beginning of the loan period.

While the choice to execute on this call option is fully at the discretion of the market maker, it is safe to expect that at least a part of the inventory will be purchased over the course of the collaboration.

Liquidity and Accessibility Are King

For readers less knowledgeable about crypto market dynamics, it might seem that having more tokens on the market is always negative. This is true only if demand remains flat.

However, it's incorrect to assume that $1 million worth of OPN will be sold as a result of this loan. Market makers do not benefit from a lower OPN price. For them to profit, trader demand must increase, usually via exchange listings. This is the game being played.

In this space, most people are traders who prefer liquid markets with tight spreads. Accessibility is prioritized over fundamentals or narrative. We have consulted many partners and VCs, all of whom are structurally long on OPN and unanimously agreed on this approach.

A token loan agreement with a market maker would be similar to those of many prominent tokens in the top 100 ranking. Ironically, the biggest difference for most utility dapps in the top 100 is their top-tier listings, which we currently lack. It's clear to us that what holds us back is not being listed on such exchanges. Market makers are the gateway to these venues, and we believe this loan structure aligns them to desire a higher OPN price by leveraging their influence and ability to attract traders.

Win-win: Diversification for the next chapter in DAO operations

One of the challenges faced in the DAO’s current modus operandi is the need to assign funding for productive initiatives such as marketing and community development without impacting market sentiment for OPN. This problem particularly compounds when many external contracted sources require payment in stables or alternative assets.

In the case of a market maker putting DAO treasury to work and eventually choosing to call the option to purchase the OPN, the DAO has an opportunity to conveniently and without complication diversify a significant portion of the treasury in a single instance without directly impacting the market or price of OPN.

This would make room for larger more ambitious community development, increase incentives for OPN supporters and allow for more ambitious marketing, should the DAO wish to do so.

Simplified summary:

• The mandate would run for 18 months total, until December 31st, 2025.
• The collaboration with a market maker would likely last 12 months, towards the end of which a continuation would be re-assessed and put to vote.
• The DAO does not incur a net loss, the only exchange that might happen is a diversification of funds from OPN into stablecoins.
• If the required inventory for listing surpasses $1m in value, the provided funds will be supplemented from the UGF.
• Should the market maker choose to execute on the loan options, the stablecoins received will be returned to DAO treasury at the end of the 12 month period.

The vote will run for 5 days, after which the option with the most votes will be deciding.