Crypto Market-Making Services and Their Role in the Market

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Crypto market makers are essential players in the digital asset landscape, contributing to liquidity and fostering efficient trading environments. In this dynamic sector, market makers play a crucial role by facilitating the buying and selling of cryptocurrencies. In this article, we’d like to discuss how market makers act in the market and their importance.

What is a Crypto Market Maker?

It can be a financial company or HFT (high-frequency trader) engaged in a market-making program on a crypto exchange to facilitate its trading activity and liquidity. Some market makers use their own capital for trading (profit-driven market makers), while others use their client’s funds (designated market makers).

The essence of market makers’ work is to place bid and ask prices on an order book and be ready to fulfill arising orders. In a way, they take the role of buyers and sellers, balancing demand and supply and facilitating a healthy trading environment. 

Market makers’ profit comes from the buying and selling price difference, also called “spread”. The idea is to make the spread as tight as possible, forming a liquid market for other participants. By accumulating spreads from numerous high-volume trades throughout the day, market makers secure their profits. This dynamic process not only benefits market makers but also contributes to the overall liquidity and efficiency of the cryptocurrency market.

The Role of Market Makers in Crypto

The role of market makers is often misunderstood, as they have been criticized for some practices that could hurt the reputation of projects they represented. For example, some market makers engage in dishonest actions where they place orders and are not going to execute them. Or “wash trading”, where a trader “trades with oneself”, creating a fake activity in the market. Such kind of practices are forbidden on reputable crypto exchanges. This is also the reason why they impose stringent requirements for a potential marker maker (compliance, due diligence, security measures, reporting, etc.).

Here are the main roles of market makers in crypto:

  • Provide liquidity and build a healthy market 
  • Reduce volatility and price swings
  • Reduce buy-sell spread, making the market efficient for other participants
  • Encourage new traders to participate
  • Build a strong community and raise investors’ loyalty
  • Help new tokens become visible and tradeable.

Conclusion

Crypto market makers stand behind high liquidity and efficiency in the digital asset landscape. By participating in market-making programs, they balance supply and demand, contributing to a healthy trading environment. Reputable market makers adhere to rigorous exchange requirements, reducing volatility, attracting new traders, and supporting token visibility for potential investors.