How to Provide Liquidity in a Market Maker Program

Institutional trading of crypto takes so many forms. That may be direct ownership of cryptocurrencies, participation in crypto investment funds, engaging in over-the-counter trades, or utilizing crypto derivatives. Institutions may choose to acquire digital assets for long-term investment purposes or enter through investment funds that provide a diversified portfolio managed by professionals. That may also be active participation in trading on a market maker platform. Numerous exchanges (like Binance and WhiteBIT) offer such programs for large investors like banks, funds, financial companies, or high-frequency traders. In this article, we will discuss crypto market-making services and how they make money.

Crypto Exchange Market Maker and Liquidity Provider on DEX

While every regular trader contributes to the market’s trading volume share, executing large trades, especially on institutional-grade platforms, requires more significant financial resources. When it comes to injecting ample liquidity into crypto markets, large financial entities and institutional traders appear on stage. They own substantial capital to provide liquidity to institutional crypto exchanges. This is why trading platforms collaborate with specialized entities and financial institutions capable of providing large trade volumes. Market makers must demonstrate impeccable credit ratings, possess proper authorization, and prove their capacity to fulfill all obligations required by the trading platform.

In the decentralized landscape, becoming a market maker, or liquidity provider, is more accessible, as anyone can participate by adding tokens to specific liquidity pools.

How Market Makers Earn

Cooperating with a market-making platform of a centralized type, market makers make a profit in the following ways:

  1. From bid-ask spread (buy/sell price difference). An example: a marketmaker places a buy price for an asset at $40 and sell price at $40,30, pocketing the difference once the trade is fulfilled.
  2. Portion of fees. A crypto market-making program can also include remuneration for a market maker, paying them a part of trading fees from the trades fulfilled. In such a way, platforms encourage market makers be active in trading.

Talking about the DeFi space, market makers play the role of liquidity providers, and their task is to add tokens to liquidity pools. They either buy or sell crypto, facilitating the overall trading environment, and earn fees in return for their work.

Institutional crypto traders tend to participate in market-making programs from reliable and trusted exchanges because they comply with regulations and implement strong security measures. This helps traders have a smoother experience and lowers the risk.

Christopher Stern

Christopher Stern is a Washington-based reporter. Chris spent many years covering tech policy as a business reporter for renowned publications. He has extensive experience covering Congress, the Federal Communications Commission, and the Federal Trade Commissions. He is a graduate of Middlebury College. Email:[email protected]

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