The cryptocurrency industry is growing and expanding. With the influx of institutional investors, the role of crypto market makers has become vital for quick and efficient transactions with digital assets. Market makers’ role cannot be underestimated, for they ensure liquidity and stability to the highly volatile crypto market. Numerous crypto exchange facilitate their liquidity levels by implementing market-making programs. Some CEX platforms hire specialized market-making companies (like the WhiteBIT market-making platform); others create their own market-makers (like Binance).
This article explains the role of market makers in crypto.
What is a Market Maker in Crypto?
Crypto market makers are active traders who cooperate with CEX and DEX platforms to make money from the spread (buy/sell price) fees. When working with CEXs, market makers must comply with regulatory requirements, including performing regular crypto address AML check. It helps ensure they are not involved in illegal activities and follow the law entirely. AML compliance is important for centralized, regulated exchanges, for they take care of their client’s safety and operations transparency.
Crypto market-making services include:
- Market makers provide a two-sided market to match orders on a trading platform, acting as middlemen for buyers and sellers.
- Their role is to stabilize the market and bring organic trading volume into it. They do it by offering attractive buy and sell prices for tokens and fulfilling any other traders’ emerging orders. In such a way, they “drive” the market liquidity, making it attractive for more and more traders.
- The main market-making strategy in crypto is to reduce the bid-ask spread. It is the difference between the highest price buyers are willing to pay, and the lowest price sellers are willing to accept. It makes trading more efficient and less costly for all market participants.
- By placing multiple orders at different prices, market makers add depth to the market, which means that larger orders can be executed without pushing the market price, thereby reducing market volatility.
- Market makers also cooperate with crypto projects that plan to launch their tokens and want them to be tradeable and attractive to potential investors.
- Market makers absorb possible supply and demand fluctuations, helping to stabilize asset prices.
Overall, crypto market making plays a central role in providing liquidity and reducing volatility by matching buyers and sellers. By doing so, market makers help to ensure that the market remains efficient and fair for all participants. Ultimately, it helps to promote the growth and adoption of cryptocurrencies.