Today, we will take a look at one of the key participants in the cryptocurrency market, a market maker.
Crypto market makers are defined as individuals or entities that help maintain liquidity in the cryptocurrency market by placing buy and sell orders on order books. They work with crypto exchanges to improve trading execution and make platforms more attractive to users.
The Role of Market Makers
The primary role of market makers is to ensure that there is a substantial supply and demand for a particular asset and a high level of trading activity. This guarantees quick order fulfillment, which is a hallmark of favorable market conditions and lower risk.
Market makers set offer prices and bid prices for trading pairs, and can step in as a buyer or seller in a transaction when there’s no suitable counterparty available.
However, not all market makers are the same, with some being accused of taking advantage of their role to earn profits at the expense of the health of the token.
Below, we take a look at the different approaches for supplying liquidity for a primary listing via pre-market order construction are as follows:
- Parasitic: A parasitic MM exploits pre-market conditions by creating artificial scarcity and manipulating sentiment. They wait for retail bids to rise and then aggressively short the token, placing high sell orders to absorb demand, causing the token price to decline. This harmful strategy exploits initial demand, often causing irreversible market damage
- Transitory: The parasitic MM manipulates the pre-market order book, placing overwhelming sell orders to fill their positions and maximize fees or close OTC trades. This approach leads to a rapid market exit, removing potential price upside by heavily selling off the token
- Symbiotic: In contrast, the MM uses its understanding of the pre-market order book to strategically set up opening liquidity building long-term value and ensuring accurate price discovery. By providing liquidity on both sides, the MM facilitates an orderly price discovery process that reflects the asset’s true market value.
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