The Role of Market Making in Crypto Landscape

The Role of Market Making in Crypto Landscape

Providing services to institutional investors, crypto exchanges recognize the necessity of employing market makers to ensure sufficient liquidity and seamless trading. For example, the WhiteBIT platform for institutional crypto trading cooperates with market makers to maintain its liquidity at a decent level. In this article, we will talk about the role of a market maker in crypto, touching upon crypto exchanges and new tokens.

What is a Market Maker in Crypto?

A market maker is a specialized company, financial entity, or high-frequency trader that ensures liquidity for specific training pairs on a crypto exchange. Their task is to initiate orders on buying and selling crypto assets, establish buy and sell prices, and fulfill any order that appears on the order book.

Market maker services include increasing and maintaining liquidity. Market makers inject large trading volumes into the market. Unlike unethical practices such as wash trading, market makers create organic trading volume and a healthy trading environment.

The main crypto market-making strategy involves continuously placing buy and sell orders for specific assets to provide liquidity and facilitate smooth trading. Market makers aim to reduce bid-ask spreads, ensuring fair prices and efficient order execution. A popular strategy is delta-neutral, where market makers manage risk by assessing and offsetting their directional exposure using derivatives and futures trading. This strategy helps balance profits and losses in portfolios, reducing the possible consequences of market volatility.

How Does Cryptocurrency Market Making Help in Token Adoption?

Market making is not only beneficial for crypto exchanges but also for new crypto projects trying to promote their tokens and receive approval on the listing.

Right after the initial listing, there may be no buyers for an asset, making it challenging to form a fair price. In this case, projects address a cryptocurrency market maker. Here is what they get as a result:

  1. Fair pricing. Deep liquidity is required to ensure price stability and market makers provide it. They reduce bid-ask spread and this helps stabilize the asset price.
  2. Trust. Market makers create organic trading volume for the asset. It helps grow the project and its legitimacy, which is a foundation for investors’ trust.
  3. Community growth comes as a result of fair price formation and trust.

Altogether, it creates a solid background for a project to be approved for listing on reputable crypto exchanges. The organic volume contributes to long-term asset stability. Collaborating with market makers not only fosters a healthy trading environment on crypto exchanges but also ensures the growth of new tokens.