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Crypto Market Making: How Does It Work and How to Get Started?

The market of crypto assets is developing at a rapid pace. During the last couple of years, it made a huge leap towards institutional adoption. In 2021, after Bitcoin crossed its historical peak, some big technological and financial companies stepped in, changing the way the world perceived crypto upside down. This shift stimulated the development of institutional services for large customers, including security, compliance, and liquidity. The latter we’re going to discuss in this material.

Liquidity and Market Maker Services

Liquidity is a fuel for efficient and fast trading. Without liquidity, we’d have to spend hours waiting for someone to buy or sell assets to us. When we place an order to buy a token, and there’s no one to sell it, a market maker comes to the scene.

Crypto market-making services include continuously placing buy and sell orders for crypto pairs and ensuring the fulfillment of other traders’ and investors’ orders. It’s especially important for institutional crypto platforms, as their customers operate large amounts and require higher liquidity.

Suppose, you want to buy AAVE tokens for $500, but there’s no one to offer you AAVE at your price and in the needed amount right at the moment. Market makers fulfill your trade, and you get tokens in a matter of minutes. If a market maker can’t cope alone (your request is too large), several market makers can quote their prices.

How to Become a Market Maker?

Not just anyone can become a market maker. At the same time, even a small retail trader is “making” the market by creating demand and supply in the volume they operate. Large trading platforms, where large trades occur, aim to hire a crypto market-making company or entity that has a proven track record and capital, as well as compliance. In general, the process of becoming a marker maker looks as follows:

  1. Choose a trading platform and a crypto market-making program
  2. Partner with a platform
  3. Purchase market-making software if you aim to use automated trading strategies
  4. Start trading actively.

Some platforms may require you to possess a minimum capital, however, you should clear up all the details before partnering.

There’s also a possibility to become a liquidity provider on a decentralized exchange. In this case, you don’t have to prove your capital or partner with anyone – just choose a liquidity pool, add tokens to it, and earn from other traders’ fees.

Wrap Up

To become a market maker, you should partner with a market maker crypto exchange and choose a program, buy software, and start trading. Make sure you possess sufficient capital and comply with regulations before you start. Or, the easier way is to participate in liquidity pools on DEX with any size of capital.

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