When we place an order to buy or sell tokens on a crypto trading platform, we don’t reflect on who’s there on the other side of the trade. And often, it is a crypto market maker. A market maker is a financial entity or bank, or an individual that pours liquidity into a specific traded pair by placing buy and sell orders during the day. The task is to maintain sufficient liquidity in the market, ensuring that other traders and investors can easily buy and sell their assets. In return for their work, a crypto market maker receives a portion of other traders’ fees and also earns from bid-ask spread.
Market making is vital for institutional cryptocurrency trading. On the one hand, large trading volumes would be impossible without sufficient liquidity. On the other hand, institutional traders themselves can become market-makers by partnering with a crypto exchange. Kairon Labs, Jane Street, and Bluesky Capital are some of the biggest market makers in crypto.
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Crucial Benefits of Market Making in Crypto
Market makers create a healthy environment in the cryptocurrency market. Here are the roles they take:
- By continuously placing buy and sell prices, market makers provide liquidity to order books, enabling smooth fulfillment of traders.
- They increase a platform’s level of trading activity, making it attractive for other traders and new customers. These all help grow trading volume.
- Cryptocurrency market making helps to create the market for newly listed tokens that have low liquidity and help them be traded more frequently and become attractive for buyers.
- Market makers maintain a narrow bid-ask spread, which is the main indicator of solid liquidity and a healthy trading environment. This helps create stable crypto markets and protect against manipulations with price.
Crypto trading platforms cannot do without crypto market-making services, or at least they cannot be efficient enough without them. While institutional investors and retail traders place orders on a trading platform, there is always a market maker behind the scenes, making the process smooth.
Market makers are usually financial entities or investment banks – as they possess significant capital, they can inject sufficient liquidity into trading platforms and earn their interest. Without market makers, prices would be unstable and much easier to manipulate, trades would not be fulfilled quickly, and new markets would hardly develop. So, the role of market makers is vital in many aspects.