The next generation of market making and liquidity provision

Discover the evolving landscape of market making and liquidity provision in crypto, including the role of automated market makers, the lack of regulation, and the future of this crucial market function.

Key takeaways

Market making serves a purpose in providing liquidity to a market, ensuring that buyers and sellers have someone to trade with and that prices are stable.
In traditional finance, market making is a well-established profession, but in crypto, it’s still evolving and more fragmented.
Market making in crypto involves providing liquidity to a market by taking on risk, which can involve moving orders and adjusting prices to ensure continuous trading.
Token issuers often struggle to provide liquidity for their tokens, and therefore, market makers play a vital role in providing liquidity to the market.
Market making in crypto is not just about providing liquidity, but also about ensuring that the market is fair and transparent.
Automated market makers (AMMs) are a type of market maker that use algorithms to provide liquidity to a market.
In traditional finance, market makers are regulated and are required to provide best execution, while in crypto, there is no equivalent regulation.
The lack of regulation in crypto means that some market makers may engage in practices such as front-running, spoofing, and wash trading to gain an advantage.
However, many market makers are committed to providing liquidity and ensuring fair trading practices, and some exchanges have implemented measures to prevent market manipulation and ensure fair trading.
The future of market making in crypto is likely to involve more automation, more regulation, and more market makers entering the space.
Some market makers are already using advanced technologies such as machine learning and artificial intelligence to optimize their trading and provide better liquidity to the market.

The next generation of market making and liquidity provision

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