Every market’s success largely depends on liquidity, and the crypto sector is no exception. A liquid asset always has enough buyers and sellers. Liquid assets are easy to sell under any market conditions. Even when the market is moving down, while some get rid of tokens, others buy them low. On the contrary, low-liquidity assets have a volatile price and are easy to manipulate.
Crypto market makers help create organic liquidity for new tokens or grow and maintain it for existing assets. How exactly do they do it? Read on to find out the answer.
The Essence of Market Making in Crypto
Market makers aim to provide liquidity to digital assets by placing limit orders on buying and selling assets. The difference between the buying and selling prices (spread) constitutes a market maker’s profit. The common crypto market maker strategy is to submit as many orders as possible and make a profit from a large volume of fulfilled trades, maintaining a short spread.
In addition, makers earn from arbitrage and receive profitable trading conditions on exchanges. For example, the WhiteBIT crypto market-making company offers the lowest spot and futures fes, flexible APIs, advanced tools, and other benefits to incentivize market makers to be active on the platform.
Market makers need to integrate strong AML (anti-money laundering) checks into their processes to reduce the risks of illicit activities. Bitcoin AML check helps market makers comply with regulatory standards, safeguard their operations against financial crimes, and build user trust.
Who are the Market Makers in Crypto?
After all, who can become a market maker? It depends on what platform you strive to use. If it is a centralized and regulated exchange, it will likely use the services of professional market makers:
- bank;
- institutional trader;
- trading firm;
- high-frequency traders;
- etc.
The requirements for a market maker on such platforms are strict. They should adhere to the regulations (mentioned above) and ensure a specific trading volume influx.
Individuals actively participate in decentralized platforms (DEX) market making. The fact is that there are no order books on DEXs. Traders lock their assets in a liquidity pool, from where they are used to fulfill trades. No intermediaries – the process takes place automatically via smart contracts. A common incentive for liquidity providers is a share of the trading fees collected from trades within their provided liquidity pool.
Cryptocurrency market-making may take different forms, and its participants may be individuals, firms, financial entities, etc. Regardless of the type of platform, market-making stands as an essential component in the crypto ecosystem, ensuring liquidity and a stable trading environment.
