Market makers are traders in financial markets who are engaged in the process of buying and selling assets to provide liquidity to other traders and shorten the difference between the buy and sell prices of an asset. Market making in crypto plays an essential role in maintaining market liquidity and a smooth trading process. In this article, we will talk about the crypto market-making process and how it helps in new assets adoption.
The Essence of Market Maker Trading
Market makers are financial companies, brokers, trading firms, or high-frequency traders that cooperate with crypto exchanges. Their task is to provide stable liquidity influx to traded pairs. In return, they receive low fees, rebates, and advanced tools for efficient trading depending on what market-making program they use. However, the main source of market makers’ profit comes from the bid-ask spread.
The bid-ask spread is the difference between the price they buy assets and sell them. By continuously placing buy and sell orders, market makers stand as intermediaries always ready to fulfill other traders’ orders immediately. This creates a favorable trading environment for both retail and institutional participants, thus, increasing the rating of a crypto platform and attractiveness of traded assets.
A market maker in crypto acts as a counterparty for trades in case there are no organic buyers or sellers or when there are no other counterparties for large amounts in an order. Essentially, without market makers that ensure there are always enough assets available to trade easily, millions of transactions would not be fulfilled.
The Role of Market Makers in Crypto Listing
Market makers help illiquid assets gain liquidity and make them visible among thousands of other tokens. Many new tokens lack liquidity; those projects face problems like low trading volume, low interest in projects, and difficulties in exchange listing crypto. To solve these issues, they hide professional market makers, who:
- work hard on pouring liquidity in large amounts into the token, creating a constant presence of buyers and sellers for it;
- boost trading volume and reduce transaction costs through liquidity influx;
- make the token visible and stand out from other projects in the market, and create discussions around it.
In addition, partnering with a reputable market maker increases the project’s chances of listing on top exchanges. Also, when there is sufficient liquidity, it becomes much more difficult to manipulate the token price.
Some crypto assets like Bitcoin have stable liquidity; there is always demand for them, for they are the industry leaders. Young and new crypto projects need help in driving their liquidity and trading volume, so they search for market-making companies to help them boost awareness about their tokens, create demand, and help them list on top exchanges.