Coinsetter has announced it intends to divide a 10% stake in the company's business among interested market makers who agree to add liquidity to its order book.
The company's newly announced Market Making Equity Incentive Program will require participating market makers to maintain at least $300,000 in holdings with the New York-based exchange. Coinsetter will then partition its corporate equity based on trading volume that can be linked to quotes provided by its market makers.
CEO Jaron Lukasiewicz framed the program as possibly the "most exciting announcement" in the company's history, one that would grab the attention of larger hedge funds that may not be swayed by smaller investment opportunities.
However, Lukasiewicz told CoinDesk that he believes the program is also attractive for Coinsetter as it will allow the company to provide a more enticing suite of offers to traders.
"Our liquidity is hugely valuable to our customers, and ultimately we're trying to double the amount of liquidity we can provide near the top of the book for the companies in the space. Ultimately, that results in less slippage, better pricing and a better, more liquid bitcoin space."
Lukasiewicz further positioned Coinsetter as one of the only exchanges with a capitalization table necessary to offer equity to exchange participants.
All 10% of Coinsetter's equity stake offering remains unclaimed as of press time, according to the company, which said it does not plan to advertise new entrants into the program.
Strategy necessary for long-term success
Though a novel offering in the bitcoin space, Lukasiewicz explained the equity extension as a tested strategy used by major stock exchanges.
"We've seen similar things in the equities space, a lot of electronic communications networks (ECNs) have done somewhat similar programs in terms of incentivizing well-capitalized market makers to provide liquidity through equity," he said.
Lukasiewicz stressed that, for him, the deal was primarily about ensuring Coinsetter would be able to offer a competitive product for the exchange's current and future customers.
Bitcoin businesses like Circle, he said, will be looking for competitive markets to offload the bitcoin they receive from consumers and require liquidity as a prerequisite to any relationship.
"Our fundamental belief is that, if you look at the structure behind what we're offering, the core belief is that we can incentivize market makers to make quotes near the top of our book, quotes that aren't available on any other exchange," he said.
Liquidity as a top priority
Notably, the news comes during a relative flurry of activity for US-based bitcoin exchanges that are targeting institutional investors and businesses.
Tim Draper-backed bitcoin startup Vaurum, for example, recently rebranded as Mirror as it prepares for its formal launch. Mirror will leverage the nearly 30,000 BTC purchased at auction by Draper to add liquidity to its exchange as it grows internationally.
Further, Buttercoin recently opened its exchange to US businesses and consumers, advertising at the time that an unnamed hedge fund is currently acting as a market maker for its order books.
Lukasiewicz, however, said the exchange is choosing instead to focus on its own goals, and that it intends for the results of its newest program tell the story of its success, concluding:
"In the end it all comes down to the numbers, and the numbers will be displayed 24/7 on our order book."
Images via Coinsetter; Shutterstock
The company’s newly announced Market Making Equity Incentive Program will require participating market makers to maintain at least $300,000 in holdings with the New York-based exchange. Coinsetter will then partition its corporate equity based on trading volume that can be linked to quotes provided by its market makers.