Keyrock

A market maker supplies the markets with liquidity by buying assets from sellers who want to sell and selling assets for buyers who wish to acquire them. Being on all ends of a trade allows a market maker to achieve its mission to boost liquidity, which helps reduce price volatility and create a more efficient and fairer market.

Market makers place bids and asks at multiple levels on order books to keep the market liquid while maintaining delta neutrality. This additional support to the market tightens spreads, enabling individuals and institutions of any size to enter or exit the market anytime. However, market makers are exposed to price volatility risk as they commit to filling orders.

To reduce this risk, they usually ask higher selling prices (ask prices) than buying prices (bid prices), creating a spread that compensates for the risk.

Cryptocurrency market makers provide liquidity on (de)centralized exchanges by buying and selling digital assets to traders, investors, and other market participants at all times. This increased liquidity creates a fair marketplace for tokens on exchanges as it reduces price volatility and buyers and sellers are assured to have their orders completed.

To bear with the rapidly changing market conditions in the crypto space, the role of a market maker is key. They develop sophisticated algorithms to adequately manage liquidity in a liquidity disparity environment.

The role of market makers in the crypto space is similar to the one they uphold in traditional finance. They act as providers of liquidity for assets to be fairly priced, avoiding high impact on the market, but can also support your token adoption.

Encountering price discrepancies between different markets (CEX and DEX) can hinder token adoption. Adjusting liquidity is therefore essential, as it is a key parameter in creating a seamless experience for users who want to acquire assets. 

Ultimately, market making solutions help to build trust between buyers and sellers for a specific asset, thus tightening spreads and improving trading conditions.