What drives investors away from trading a token

Let’s assume that you have introduced a product with strong fundamentals, active community, a clear use case, and a dedicated team working hard on community engagement. But your trading volumes still are not satisfactory and instead of rising, the price is very volatile.

There are some reasons, that can influence the unwillingness to trade your token. The most important of these are:

price volatility
suspicious metrics
a wide spread and a wide slippage

Liquidity metrics that investors are watching

When investors decide not to invest? Let’s take a look at order books and pools and try to bring you closer to the liquidity metrics that are important for investors:

Market depth vs. Price

Market depth describing the total value of orders within a certain distance (usually +-2%) from the current price. If there is no liquidity in order books or pools (low market depth), it means that there are relatively few buy and sell orders at these price levels. It makes the market susceptible to rapid price changes even when a relatively small trade is executed. High price volatility can impact stability of your markets and raise the investor’s risk. A healthy market with deep liquidity has a significant number of orders around the market price, making it easier for traders to buy or sell assets without causing substantial price movements.

Lack of depth causes significant price movements and difficulty in exiting investments

The price and volume chart of our client shows the positive effect of price stabilization algorithms.

Solution: Increase market depth to stabilize price

Take a look at the chart of one of our clients. Before algorithms entered this market, there was almost no depth. Volumes were minimal because large price volatility discouraged investors. Our algos stabilized the price and offered investors constantly good trading conditions which, as a consequence, contributed to an increase in volumes.

Market depth vs. volume

Appreciate your investors. Unfair practices are easy to recognize. When there is no market depth (+-2% Depth) but high trading volume, there is an increased probability that the reported metrics may not reflect actual trading activity and not reflect the real supply/demand.

Unhealthy markets discourage investors from trading

If you take a look at the example token markets (the table below) you will easily recognise that such a low liquidity position like $187 for example cannot make a volume of more than $14 million in 24 hours. Traders also look for this kind of pattern. When they see this, not only will they not invest in the token, but they will lose confidence in the project and they will not come back again!

Table: Liquidity metrics of sample token markets.

Solution: Build healthy liquidity

Our experience shows that wisely increasing market depth and stabilizing prices will result in organic volume growth without the need for shortcut practices.

Trading volume vs. spread and slippage

Spread along with slippage has a direct impact on investors’ entry and exit costs. Investors hesitate to commit funds if they face challenges in entering but, just as importantly, in liquidating positions at any time at the lowest cost– so liquidity must be provided 24/7.

High transaction costs make token less attractive

Chart: Spread

Solution: Narrow spreads

Take a look at the spread chart of one of our clients. Just before we started operating on this market (spread chart), the average spread was 1,1%. In the first days of our operations, it dropped to 0,3% and is expected to further decrease, which indicates a healthy market.

Summary

Our main goal in partnering with web3 projects is to help them attract and hold investors by ensuring consistently good trading conditions on all the exchanges where the token is listed (refers to both CEXes and DEXes). That’s why we take the promise of being in the market 99% of the time very seriously increasing market depth and narrowing spreads. As a result, the price is stabilized and volumes begin to grow organically.