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What is a Market Maker in Crypto?

There are many different players and roles in the crypto market – crypto exchanges, traders, investors, brokers, etc. Among them, market makers hold a special place. Crypto exchanges use crypto market-making services in order to maintain their liquidity at a decent level and have a constant trade flow.

New crypto projects cooperate with market makers to inject trading volume and make their tokens visible and attractive to investors. Let’s see how market makers work.

How Does Market Maker Work?

Crypto exchanges may offer different conditions for market makers. Right now we are talking about centralized platforms where trades take place through order books. Basically, a market maker opens positions on the market by placing different prices – for buying and selling (bid and ask).

For example, that may be a position to sell assets at $1100 and buy at $1000. As long as the market price holds within this spread (the difference between buy and sell price), a market maker will earn the difference (spread).

Additionally, there may be fee rebates on a crypto exchange, which makes a market maker’s activity even more profitable.

Here are the benefits of cooperating with a market maker in crypto:

  • Market makers reduce the spread, making prices fair.
  • They are always ready to buy or sell assets, if there’s no organic counterparty.
  • They absorb large orders and at the same time avoid growing volatility in the market.
  • They stabilize prices and make assets less sensitive to volatility.
  • When “whales” enter the market, there are always enough orders to match their demand due to market makers. So there will not be sharp price jumps.

The Difference Between Crypto Market Makers, Traders, Dealers, and Brokers

Indeed, all these market participants are actively involved in trading, and many of them make money from spread, but they are still different at the core:

  • A trader’s goal is to make money on price differences using different strategies, including speculation. Traders don’t have a goal to provide liquidity like market makers do.
  • Brokers are middlemen who execute trades on behalf of their clients. They also match buyers and sellers of crypto assets. Brokers, same as crypto exchanges, may be clients of market makers.
  • Standing as independent liquidity providers, dealers may also include market makers. The difference is that dealers are continuously providing their services, while market makers do it on a case-by-case basis.

The role of a crypto market maker should not be ignored, for they are key players in maintaining market stability and liquidity. Their provision of buy and sell quotes contributes to efficient price formation and fosters a more vibrant and trustworthy trading environment.


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