Who is the market maker?

When a new asset begins to bargain on the exchange, for example, shares of a company that conducted an IPO – the price for it may be unstable. The chaotic behavior of investors and the lack of the necessary liquidity for operations can lead to sharp price jumps, a drop in the volume of trading, a high difference between the prices of sale and purchase.

To avoid such a situation, a trading platform or issuer can involve a market maker to the services. This is a special trading participant, usually a large organization with impressive capital and a team of professional traders.

The aim of the market maker is to increase the efficiency of the market by solving the following problems:

  • Creating liquidity. The market maker must provide customers of the exchange for the necessary volume of the asset for transactions to create a stable flow of trade applications. This is necessary that individual investors and traders can make transactions of any size at different prices. For example, the market maker undertakes to submit at the same time applications for the purchase and sale of a particular asset in the equivalent of $ 1 million for a whole month from 10:00 to 15:00 each trading session.
  • Prevention of sharp prices. The market maker must provide a continuous, smooth movement of the price of the asset, prevent sharp failures and ups of quotes. He makes sure that the spread, that is, the difference between the purchase and sale, was minimal.
  • Mediation in major transactions. If the exchange does not have enough liquidity for some tool, a one-time execution of a large-size transaction may violate the stability in the market. To prevent this from happening, the market maker can conduct an operation, bypassing the exchange, speaking an intermediary for a large buyer and seller.

How it works and what the market maker makes on?

Unlike traders and investors, the market maker earns not only due to price movements – its possibility of receiving income is much wider. Here are a few examples:

  • Spread. Marketmeyer takes the difference between ASK and Bid prices called a spread. For example, the current sale price (ASK) is $ 99.5, purchases (BID) – $ 100.5. Marketmaker’s applications are placed on both sides of the glass. As a result https://gagarin.news/news/the-difference-between-mining-and-staking-their-main-features/, he receives income in the form of a difference between these offers ($ 1) when performing transactions.
  • Arbitration. Like other major players, market makers use inefficiency of markets, using various types of arbitration strategies.
  • Payment for services. The market maker can receive fixed payment for his work from the exchange or other interested participant, as well as bonuses and discounts on trade operations.
  • Office transactions. Acting as a mediator between large buyers and sellers, the market maker can receive a percentage for such operations.

How marketmakers affect the cryptocurrency market?

Traditional financial markets have the largest investment banks: CITI, BARCLAS, BANK of America, Goldman Sachs, JP Morgan and Morgan Stanley.

The largest market makers are Alameda Research, affiliated with the FTX exchange, and the trading company Cumberland.

The activity of market makers increased in 2021 led to an increase in demand for stablecoins, which are used for calculation and storage of capital. According to the ProTOS portal, published in August 2021, Alameda Research and Cuberland accounted for about 70% of the USDT Steabelcoin emission at that time.

Market makers make profit by providing crypto -rhizas for trading couples in the USDT market (BTC/USDT, ETH/USDT, and so on), as well as speaking for large over -the -way transactions.

According to Protos, Cuberland is most active on the Binance exchange, Alameda Research works with FTX.

What role do market makers play in the field of Defi?

The mechanisms applicable on centralized exchanges are suitable for the Defi application market. One of the largest market makers in the Defi segment is the cryptocurrency division of the Chicago Trading Giant Jump Tradition – Jump Crypto.

Along with the activities of the market maker on decentralized exchanges like SERUM, working on the SOLANA blockchain, Jump Crypto actively invests in Defi. Here are a few projects included in the company’s investment portfolio: