The cryptocurrency market is growing, creating many investment opportunities for traders around the world. The factor contributing to this development is Market Makers – this term is mentioned quite a lot in cryptocurrency. Do you really understand what a Market Maker is in the crypto market? Let’s learn about Market Makers with Unich Labs, how they work, make profits, and their importance in the cryptocurrency market today!
What is a Market Maker?
Market Maker is created from two main phases market and maker, this term can be understood as people who make the market.
Market makers (often abbreviated MM) are individuals and organizations with strong capital and rich experience in the crypto market, they specialize in providing and creating liquidity for the market.
These MMs often buy and sell coins, tokens, etc., to create liquidity for the market and stabilize the price of digital assets.
How does a market maker work?
Basically, MMs will cooperate with cryptocurrency projects to provide liquidity for that digital asset. Instead of using the project’s tokens to create liquidity, MMs can borrow and use those tokens, and at the same time, create a market with demand and full liquidity. MMs are often offered tokens at a preferential price by the project and then “control” the value of the token by controlling the majority of the supply in the market.
In addition, MMs use Call options to control the market. Call options allow MMs to buy an asset at a fixed price, after a certain period of time, they will control the risk and create effective trading strategies in the cryptocurrency market.
How do market makers make profits?
In essence, market makers are businesses that invest to make profits. MMs that create markets for newly launched cryptocurrencies will face many risks from general price fluctuations. When the price of digital assets goes down, MMs may lose money. However, to compensate for these losses, MMs will apply a fee called spread. Simply put, the spread is the difference between the buying price and the selling price. At that time, if investors want to trade, they need to pay a certain spread depending on the product they choose.
An example to illustrate how MMs make profits in the market:
When a new token is launched, the cryptocurrency project puts the token at a preferential price of 100 USD for MM, but on the market, MM will list the token for sale at 100.5 USD. At this time, if traders trade in large volumes, the makers will profit from the spread.
The role of market makers in the market
MM is considered an indispensable part of the Crypto market, creating liquidity for the market and ensuring smooth transactions. Let’s take a closer look at the role and importance of Market Makers in the crypto market.
High-frequency trading
The biggest role that MM brings is to create liquidity for the market, one of the methods applied is high-frequency trading. High-frequency trading methods use a lot of computer software, allowing the execution of many orders in a short period of time.
High-frequency trading methods are often related to Scalping strategies (buying and selling in a short period of time), so they use AI to analyze the market, and many programs are even automated without human intervention.
Market support
Accordingly, the maker will increase the depth of the market by maintaining a large number of trading orders without affecting the price. By executing this large number of orders, MM also supports providing liquidity support and stabilizing the market.
- Optimizing the depth of the market: MMs will place many buy and sell orders at different prices, facilitating matching between many different traders. This will promote high liquidity and fast trading of assets.
- Liquidity support: MMs will maintain continuous transactions, ensuring liquidity for the market. Accordingly, the supply and demand volume ensures that there are always buyers and sellers available to trade.
- Keeping the market stable: MM plays a role in adjusting the price difference between exchanges, not exceeding the allowed level, ensuring that investors trade at a reasonable price.
- Limit risks and ensure safety: In case the market is falling, and investors want to sell digital assets, MM will place a buy order to minimize risks and losses for investors.
- Avoid sell-offs: MM will be ready to buy when the sell-off causes asset prices to drop sharply. This will reduce fear and help stabilize the market.
Difference between Market makers and Automated market makers
In addition to the term Market Maker, investors will encounter an Automated Market Maker when learning about the cryptocurrency market.
An automated market maker (often abbreviated AMM) is understood as an automatic market maker. Instead of using traditional MM, the price and liquidity of digital assets will be created and maintained through AMM algorithms.
AMM is built on smart contracts on the blockchain. Liquidity providers bring assets to trading pools, then investors will trade that assets based on smart contracts.
Compare the differences between MM and AMM:
- AMM is a better liquidity solution for LTAs (Long-Tail Assets): Basically, both MM and AMM create liquidity for digital assets. But in reality, very few MMs accept to make markets for LTAs. Because of the characteristics of LTAs, there are strong price fluctuations, low trading volume, and difficulty in sustainability. Therefore, LTAs do not create much potential profit for MMs.
- Transaction fees: The transaction fees of the market created by MMs are much lower than the transaction fees of the market created by AMMs. The reason for this problem mainly comes from the risk of providing liquidity to the market. The risk level of the market created by AMMs will be higher than that of the market created by MMs.
5 Reputable Market Makers in the Crypto market
Market makers are an indispensable part of the development of the crypto market. Currently, there are many new market makers emerging, creating many markets for investors to choose to trade. However, you need to choose a reputable market maker to trade effectively and receive the best support. Below are the market makers that are highly appreciated by many investors:
BR Group
BR Group is a company specializing in technology solutions, promoting decentralized financial projects, in-depth market analysis, etc., to bring projects to the market.
BR Group focuses on creating profits for investors. BR Group services are provided 24/7, monitoring performance in real-time. Each project will be assigned an expert by BR Group responsible for adjusting the appropriate strategy for each digital asset.
Wintermute
Wintermute is a leading algorithmic trading company in digital currencies. Wintermute focuses on creating liquidity for the market and improving efficiency on centralized and decentralized platforms. Wintermute is at the forefront of Blockchain technology innovation and provides users with everything they need to invest successfully.
Currently, Wintermute holds many tokens from more than 50 different projects, but the largest proportion in this MM portfolio includes:
- Arkham: 23.83 million ARKM equivalent to $59.59 million
- Ethereum: 4,117 ETH equivalent to $15.61 million
- Lido: 6.007 million LDO equivalent to $15.25 million
- Avalanche: 304,882 AVAX equivalent to $10.37 million
- Worldcoin: 1.78 million WLD equivalent to $8.65 million
Jump Capital
Jump Capital is a venture capital fund based in North America, founded in 2012. Investments of Jump Capital range in size from $1 million to $5 million. Jump Capital has a diverse portfolio of digital assets and coins. At each stage, Jump Capital will research and select prominent trends to invest in that field.
Notable projects of Jump Capital’s founder include Stader Labs, Hubble Protocol, NEAR Protocol, Coinlist, Tradingview., etc.
In 2024, Jump Capital’s portfolio has had new updates. Here are the projects that this Investment Fund actively stores:
- Lido: 2 million LDO equivalent to $5.06 million
- Threshold: 32.32 million T equivalent to $1.12 million
- Project Galaxy: 183,325 GAL equivalent to $656.30 thousand
- XCAD Network: 743,034 XCAD equivalent to $393.05 thousand
- Stader: 1.78 million SD equivalent to $290.09 thousand
GSR Market
GSR Market is a well-known cryptocurrency trading company from Hong Kong. GSR Market uses its own software to provide order execution solutions for cryptocurrencies.
This market maker has a team of experts and top management from major financial institutions around the world. Therefore, they can provide intuitive risk management strategies, applying the company’s proprietary trading technology that is modified for each project.
Let’s take a look at the list of projects that GSR Market is “favoring” in 2024!
- Gala: 368.23 million GALA equivalent to $15.75 million
- Ethereum: 3,697 ETH equivalent to $13.99 million
- Echelon Prime: 561,619 PRIME equivalent to $9.64 million
- BigTime: 21.58 million BIGTIME equivalent to $4.96 million
- Arkham: 1.38 million ARKM equivalent to $3.45 million
DWF Labs
DWF Labs is a well-known market maker with offices in Singapore, Switzerland, the United Arab Emirates, South Korea, Hong Kong, etc. DWF Labs is a subsidiary of Digital Wave Finance (DWF) – one of the largest cryptocurrency trading organizations in the world.
DWF Labs provides services to companies in the Web3 field, providing support for coin listing on exchanges. Notable projects of DWF Labs include Kava, SpaceID, Coin98, Flow, Synthetix, etc.
In 2024, DWF Labs will not focus too much on a specific project. The company’s portfolio is evenly distributed across many projects, especially these projects have recorded good growth up to now.
- Orbs: 151.1 million ORBS equivalent to $4.95 million
- DeXe Network: 300,000 DEXE equivalent to $3.95 million
- Gala: 88.31 million GALA equivalent to $3.81 million
- Litentry: 2.3 million LIT equivalent to $2.65 million
- Axelar: 2.5 million AXL equivalent to $2.62 million
In conclusion
The development of the crypto market depends largely on market makers. Investors need to understand how to choose suitable, reputable, and trustworthy MMs to trade digital assets. Above is the basic information about Market Makers that Unich Labs wants to send to readers. Hopefully, the article will help investors understand the role, tasks, and operations of MMs in the cryptocurrency market.
