The Essence and Role of Market Makers on Cryptocurrency Markets

The Essence and Role of Market Makers on Cryptocurrency Markets

A market maker is an active market participant, that buys and sells assets from other traders, submitting bid and ask prices and maintaining liquidity and market depth. The role of market makers is crucial, especially when it comes to young cryptocurrency trading platforms or new crypto assets, that lack liquidity. In this article, we will discuss the role of cryptocurrency market making and explain how it works.

How Market Making Facilitates Crypto Trading

For a better understanding, we can imagine a market maker as a warehouse of assets where people can come and buy or sell tokens without delays and in any amount. That might remind you of a broker’s work, but that’s not the same. Brokers connect buyers and sellers, while market makers act as buyers and sellers themselves.

They make agreements with trading platforms to pour liquidity into their markets and make a profit. They actively participate in the market and continuously offer buy and sell orders for various digital assets. Their primary objective is to bridge the gap between buyers and sellers, making it easier for traders to execute their orders.

What Exactly They Do

Here’s how market makers provide liquidity to crypto trading platforms:

  1. Consistently place both buy (bid) and sell (ask) orders in order books on the exchange – the price at which they are willing to buy or sell a cryptocurrency.
  2. Tight bid-ask spreads – maintaining a narrow bid-ask spread, which is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask). A tight spread reduces trading costs and makes it more attractive for traders to engage in trading.
  3. Absorbing trades – when a trader initiates a trade, the market maker acts as the counterparty. They fulfill the market order by matching it with their existing limit orders in the order book, providing immediate execution for the trader.

Market makers earn of traders’ fees and the difference between bid and ask prices – spread. Also, they use arbitrage opportunities.

Automated Market Making on a Decentralized Cryptocurrency Exchange

AMM are decentralized protocols, that rely on math formulas to price crypto assets. They are smart contracts, that create liquidity pools, facilitating automated trading by following the algorithm, without using order books. AMM helps remove the need for middlemen or centralized authorities’ liquidity provision. Besides, bots are capable of quick reactions to market changes.


Market makers help reduce the impact of price volatility and create a more stable trading environment, which benefits all market participants. They facilitate the smooth operation of crypto markets and contribute to the growth of their trading volume.

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