Every market – be it traditional stock or crypto – requires a healthy environment, where goods (stocks, assets, etc.) are easily bought and sold. When we hear “it’s illiquid” (be it a house or traded asset), we read: “Nobody would buy it”. And if there’s no one to buy, the asset (or item) becomes simply useless. The same stuff happens within the crypto assets market. If there is no liquidity for some new digital token, that means nobody wants it, which is, in fact, death for the token’s project.
Or, take, for example, an institutional cryptocurrency platform. It requires sufficient liquidity to proceed with large-volume trades. If it does not provide liquidity, it can’t fulfill large trades from investors, and, thus, simply loses all the clients.
Where does liquidity come from? Who contributes to it? When it comes to providing liquidity to crypto trading platforms – it’s all about partnering with a crypto market making company. Let’s see how they work and impact the market.
How Does Market Maker Work and What is Its Impact?
Market making means “making the market”. Day by day, market makers inject the necessary liquidity into a crypto platform or traded pairs by placing orders to buy and sell tokens. So when a trader or investor comes to the platform and desires to buy or sell the same tokens, there is always liquidity for this deal, no matter what amount the client wants to trade.
Crypto liquidity provision is especially important for institutional investments, because, unlike retail traders, they operate with large amounts and need to be sure their orders will be executed.
Essentially, a market maker’s work is day-by-day trading. They take cuts of buy-sell price spreads and make their earning on it. In addition, they earn on traders’ fees. There are some strategies they adhere to:
- market making without a hedge;
- grid trading;
- cross-exchange liquidity mirroring;
- and delta-neutral market-making strategy in crypto.
The main and crucial impact of market marks is liquidity – smooth transactions for crypto buyers and sellers, referring to both retail and institutional cryptocurrency trading. Stable and sufficient liquidity encourages holding positions and ensures that the market accurately reflects the “true” pricing of assets, with continuous opportunities for buying and selling.
Conclusion
The impact of market makers on the crypto market is essential, contributing to stable and sufficient liquidity. This, in turn, fosters smooth transactions for buyers and sellers, maintaining accurate asset pricing in the market. Ultimately, the role of market-making trading is crucial for the overall health and functionality of the crypto ecosystem.
