The cryptocurrency market is gaining momentum. Today it’s not just a space for tech-savvy people or crypto enthusiasts – it’s a sector where large companies, financial institutions, and firms tap into actively, regardless of all the instability and lack of regulations. One of the most common ways institutions use the crypto space is market-making, which acquires prominence in the developing crypto landscape.
Large financial organizations may partner with different trading platforms (e.g. Binance, Coinbase, KuCoin, etc.) and add liquidity to their trading markets, reducing price spreads and making a profit from retail and institutional participation. Over 50 entities are serving as market makers worldwide. The largest share of market makers falls in Singapore and the USA (data by Cointelegraph Research).
So who are market makers and what is their role? Let’s find it out today.
In digital assets markets, market makers are pivotal in mitigating sharp jumps in supply and demand. They contribute to price stability and create a more reliable trading environment. That is a hard job, given the price volatility in the crypto markets. Factors such as speculative trading and sharp market jumps hurdle the work of market makers reducing their efficiency.
The main role of market markets is to simultaneously offer bid and ask prices for a digital asset. To see how they work, let’s consider an example: a crypto market maker places an order on a crypto exchange to buy a token at $50 and at the same time sets the ask price to sell this token at $52. The difference between those prices is called “spread” and makes up a market maker’s profit margin.
The Role of Market Makers in the Financial Markets
The primary functions of market makers include:
Market makers are vital in establishing a liquid crypto market. Their activities enhance the trading experience for retail traders and institutional investors by promoting price stability, reducing costs, and ensuring that assets are readily tradable at any given time.
