Cryptocurrency Market Makers: Who Are They and What Do They Do?

One of the main features of a successful market – be it traditional or crypto – is liquidity. It makes a market attractive for traders by offering a healthy environment and a balance of supply and demand, as well as a high level of trading activity. Liquidity in the cryptocurrency market is provided by a crypto market maker. Let’s dive into who market makers are and what they do.

Who Can Be a Market Maker in Crypto?

Actually, anyone who participates in trading is a market maker to some extent. However, big institutional crypto platforms like Binance or WhiteBIT hire specialized companies to provide liquidity to their platforms constantly and in large volumes. Thus, financial institutions, investment banks, and other large-capital entities can become market makers for an institutional-grade platform.

To partner with a crypto exchange, an entity must prove its credibility and capital as well as compliance with regulations. Some platforms require minimal capital to enter a crypto market-making program. 

What Does a Crypto Market Maker Do?

Here’s how market makers “make the market:

• They place offers to buy and sell assets and act as buyers or sellers in transactions where there’s no suitable counterparty available at the moment. Suppose, you place an order to sell 60 SOL coins, but there’s no buyer at the moment. You don’t have to sit and wait for a buyer – a market maker will fulfill your trade in minutes. So market making in cryptocurrency ensures that traders conduct their trades smoothly and quickly.
• By constantly placing bid and ask prices for traded pairs, market makers create a favorable trading environment for crypto exchanges and help attract more customers.
• The difference between buy and sell prices constitutes a market maker’s profit, which becomes sizeable with large trading volumes. In addition, they may earn from other traders’ fees.
• Market making in crypto contributes to the stability of prices. They maintain a narrow bid-ask spread – a hallmark of strong liquidity – and protect against price manipulations. Markets become more visible, attractive, and stable for investors.

Final Word

High liquidity is an indicator of the market’s attractiveness and healthy environment for trading. Market makers are entities that partner with crypto platforms to facilitate smooth work and attract more customers. In turn, market makers receive their part of the income from bid-ask spreads and customer fees.