So, what is crypto market making? In a nutshell, this is the process of recovering a market through order processing. Unlike traditional markets, where market makers have access to credit lines and are compensated for their services, crypto market makers must accumulate trading capital themselves and take full risk of investment. This is where the role of market makers comes in. There are two main types of market making: automated and human. Both have distinct advantages and disadvantages.
Traders, or “market makers,” are the people behind stocks, bonds, and derivatives. If you own Apple Inc. shares, you probably purchased them from Wall Street market making firms. Today, the same firms are salivating over new cryptocurrencies, like crypto. The idea behind crypto is to cut out the middleman and let the price dictate the price, rather than the other way around. However, market makers need to make sure that there is enough volume to support an ask price and keep prices stable.
While it is not a new concept, market making has become an increasingly common aspect of the crypto industry. It contributes to the efficiency of crypto markets and token ecosystems by increasing tradability of assets. Listed on a cryptocurrency exchange, a market maker provides liquidity for trading and can help to increase a token’s value. While this may seem like an insignificant role in the bigger scheme of things, its presence is critical to a successful cryptocurrency industry.