What is Market Making in Crypto: Types and Advantages

What is Market Making in Crypto: Types and Advantages

Crypto market making is all about “making” a stable, smoothly functioning, and liquid market for digital assets. Market makers are companies, financial entities, or individuals cooperating with crypto projects and exchanges to supply liquidity and profit.

The Essence of Market Making in Crypto

Depending on what platform a market maker deals with, the conditions will vary. For example, the crypto market-making program on WhiteBIT provides low fees, rebates, and advanced tools for market makers. At the same time, it requires a maker to be entirely compliant with regulations because WhiteBIT is a regulated exchange. AML check BTC online helps market makers ensure they deal with “clean” funds and are not involved in illegal actions.

On the other hand, working with decentralized exchanges may be much easier for market makers. They don’t have to pass verification and are not required to comply with regulations. On DEXs, anyone can be a market maker. However, they bear a greater responsibility for their own security and due diligence. 

Cryptocurrency market making involves providing liquidity to cryptocurrency markets by constantly placing buy and sell orders. Market makers ensure that trades can be executed quickly and efficiently. They reduce the difference between bid and ask prices and enable smoother price discovery.

Types of Crypto Market Makers

Here are the common types of market makers:

  • HFT (high-frequency traders) – use algorithms to execute a large number of operations at high speed. They capitalize on small spreads, completing a large trading volume daily.
  • Banks and firms – with their significant resources, banks, and financial companies also engage in market making, contributing to the crypto market stability.
  • Brokers and dealers – maintain a large inventory of cryptocurrencies, supplying them to traders to ensure market liquidity and low transaction costs. They manage supply and demand, reduce price fluctuation, and profit from the bid-ask spread.
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Benefits of Market Makers

Market makers enhance trading efficiency by providing liquidity, allowing for smoother and faster transactions. They contribute to reduced price volatility by maintaining a consistent supply and demand balance. Market makers attract more traders to exchanges by providing a stable trading environment and helping to establish trust in the platform’s reliability and depth.

The role of market-making in the cryptocurrency sector is no less than that in the traditional financial markets. Just as in stock or forex markets, market makers in crypto ensure liquidity, facilitate smoother transactions and help narrow the bid-ask spread. They foster a favorable environment for trading, attracting a broader base of investors and enhancing the market’s growth and maturity.