⚙️Setting up your Market-Making Order

Config Options 🎚

Let's start by looking at the different config options you have available to you when you're creating a market-making order.

1 Starting price

This is the price at which first sale will happen (the first purchase will be just under this price).

✅ We recommend setting it as close to the floor as possible.

2 Delta / "Change By"

The "change by" parameter, or "delta", is actually 2 params in one:

1. Curve type (selected by the two ◎/% buttons on the left

2. Step size (the number you enter)

Here's a quick visual guide to each of the 4 options:

Linear curves are great for more stable NFTs that you don't expect to move as much. Think your SMBs, Claynosaur and Okay Bears! 🐒

Exponential curves are great for volatile NFTs that move quickly. Think your new hot mint that is sitting at 1-5 SOL. 🔥

Large step size lets you cover a broad range of prices. It makes your order less risky, but you'll probably earn fewer fees. 😢

Small step size lets you cover a narrower range of prices, but do so more effectively. Your order will be riskier but you'll earn more fees. 💸

✅ So here's a good way to think about it:

• Expensive, stable NFT 👉 Pick linear curve.

• Cheap, explosive NFT? 👉 Pick the exponential curve.

• Want to take less risk, but make less fees? 👉 Pick a large step size.

• Want to take more risk & make more fees? 👉 Pick a small step size.

3 Market-Making Fee

The market-making fee is how you make money as a market-maker. You can set this to be anything in the range of 0-25%.

The fee gets charged to the seller of the NFT when they sell an NFT into your pool.

If your fee is 25% and the current price is 1 SOL, the seller will see 0.75 as the price (because you're keeping 0.25 for yourself).

Let's think about this:

• Trader A is buying an NFT at 1 SOL but has a 25% fee

• Trader B is buying an NFT only at 0.9 SOL but has a 5% fee

Even though in theory trader A is paying more (1 SOL vs 0.9 SOL) - trader B ends up winning because of lower fees. B's shown price will be ~0.85, while for A it will be 0.75.

✅ We think fees in the range of 1-5% are the most competitive.

4 Position Size / Quantity

Finally, there's the size of your order. The more NFTs / SOL you deposit, the more trades you'll be able to accommodate.

Summary

So to summarize, here's how you should think about config options:

3 Simple Config Templates ⚙️

Now let's play out some potential scenarios and what kind of MM pools you'd set up for each.

An example assumes you have a bag of ~30 NFTs and the equivalent amount of SOL to market-make with.

🟩 Low Risk: "I'm no Pro Trader" Order

You:

• don't have a strong opinion on where the market goes (up? down? flat? ¯\_(ツ)_/¯)

• are ok gaining a few NFTs from this collection or losing a few - but you don't want to 2x your bag, or lose all of it

• generally want to "set it and forget it"

The config:

• 💲Starting price = floor price

• 📈 Exponential curve. This will ensure that if the price does move a lot in any one direction, your pool isn't exhausted

• 20%+ delta. This way if the price 2x's you'll only sell <5 NFTs out of your 20-30

• 💸 5-10% MM Fee. You're providing over a very broad range already, you can easily set a higher fee

Explanation:

You're setting up a very broad order that captures a lot of range. You're not expecting a lot of trades nor a lot of fees - but you'll make some if the market is volatile.

🟨 Medium Risk: "Replicate Royalties" Order

You:

• want to replicate royalties (so earn ~5-10% in annual yield)

• are ok having meaningful changes in your bag - not all of it, but 50% up or down

• generally want to "set it and forget it", although you might have to edit the order if the market 3-4x's

The config:

• 💲Starting price = floor price

• 📈 Exponential curve. Still better range than linear gives you more protection

• 🎚 10-20% delta. This way if the price 2x's you'll only sell 5-8 NFTs out of your 20-30

• 💸 ~5% MM Fee. Should be just enough to cover your royalties (remember you're also getting a fixed 0.9% from Tensor)

Explanation:

You're setting up a somewhat broad order, but your bag could shift significantly if the market is 3-4x. Eg with a 10% delta you'll sell off 50% of your bag if the market does a 4x. In return, you expect to earn some nice fee income, which will let you replicate your lost royalties.

🟥 High Risk: "Here to Make $" Order

You:

• are here to earn a high amount of fee income

• are ok depleting your SOL balance or selling off all your NFTs (the ones in the order ofc) if the market moves a lot

• are an active participant in the market, monitor your order daily, and adjust for any news events

The config:

• 💲Starting price = floor price

• 📈 Linear or Exponential curve. You'd pick linear for larger collections (SMBs) and smaller for exponential. To be honest, in the tight range you're providing liquidity it might not even matter

• 🎚 <10% delta. At 5% if the market 4x's you'll sell your 30 NFTs

• 💸 <5% MM Fee. You want your prices to be most competitive, so you can't afford a high fee. You expect to make it up in volume though

Explanation

You're setting up a very tight order. You're ok buying/selling a ton of NFTs if the market moves a lot on you, but that's ok because you know what you're doing and will be monitoring the order closely.