Tuesday, April 25, 2023
Crypto market makers provide a key service to the active traders by ensuring there is liquidity in the market and that orders are instantly filled, and as a result of their service, can make a healthy profit off the price spread of each trade. Read on here to learn the steps you’ll need to take to become a market maker.
Cryptocurrencies are evolving at a rapid rate and becoming more like traditional stocks, commodities, and foreign exchange markets. Cryptocurrency market makers are individuals and institutions who submit both bid and ask limit orders for a particular digital asset to provide liquidity and ensure the smooth running of the crypto markets.
There are two major types of Crypto market makers:
Now that you know what crypto market making is, we can dive into becoming a crypto market maker. There are just a few steps into becoming a crypto market maker, and they are listed below:
1) Apply for a market making program offered by a crypto exchanger platform.
2) Trade as often as you can, because every trader provides liquidity.
3) Opt-in for the training and education (offered by the exchange) to meet up with requirements needed for becoming a market maker.
4) Partner with a crypto market maker like Yellow Capital or purchase market making software that allows you to automate the process.
Many exchanges will require that crypto market makers maintain a minimum net capital. Some exchanges would require their crypto market makers to hold up to $250,000, though this figure varies depending on the exchange or project.
Cryptocurrency projects in their Initial Coin Offering (ICO) stages that are yet to go mainstream now employ the services of professional crypto market makers to create liquidity for their tokens.
To buy a crypto asset, for example - XYZ for $1,000, you have to find another person willing to sell XYZ for $1,000. Because it is unlikely that you would find someone ready to sell that amount at the time you want, crypto market makers fill in the void.
Thus, this reduces the wait time involved in buying and selling cryptocurrencies. When the order is more than what a single market maker can buy or sell, multiple market makers on the exchange are allowed to quote their prices on the order.
Crypto market makers make profits by charging a spread between the bid and offer price. This means that they offer to buy a crypto asset for less than the current price of a crypto asset and look to sell it for more than the current quote price. The difference between their bid and ask price is the crypto market maker spread.
Using the XYZ example, if a crypto market maker charges a spread of $0.08 spread on the crypto asset, they will offer to sell you $1,000 worth of XYZ at $1,000.4. However, if you were to sell the XYZ tokens to a crypto market maker, they would offer to buy them at $999.6. This difference between the price they buy and sell is how market makers make their profits.
Our team of experts specializes in creating a sustainable and profitable crypto market for your tokens through our proven strategies including crypto market making, algorithmic trading, liquidity provision, token growth, and crypto exchange listing.
Yellow's algorithmic trading infrastructure can connect to over 100 exchanges, and our constantly evolving architecture is compatible with all major Blockchain protocols.
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Crypto market makers provide some services which are needed in the cryptocurrency ecosystem such as:
Automated cryptocurrency trading: A crypto investor can start automated trading on exchanges to provide liquidity to the market and ensure stable pricing. This is because market makers are always on hand to buy or sell any crypto irrespective of the volume, reducing the wait time investors would need to find a person willing to buy/sell the amount they have to sell/buy.
Hotlink Orders: Crypto market makers ensure that you can stream more liquidity for your digital asset exchange from any third-party exchanges like Binance, Coinbase, Huobi, Bitfinex, or any other liquidity provider of your choice through configurable API endpoints
Provide Consistent Spread: Spread is made available with the use of crypto market making. Market makers allow for tighter spreads to be offered and incentivize trading among retail traders.
Aggregate Order Books: Combining the bid-ask orders on an exchange platform with the crypto available at a specific price from the third-party liquidity providers.
Market making is a healthy practice that helps to stabilize both the cryptocurrency and more traditional markets. Presently, crypto market making is the most reliable way to regulate the cryptocurrency market, and as crypto market makers are providing liquidity in the market, they are able to make a healthy profit. If your considering becoming a market maker yourself, you'll have to jump through some hoops when working with exchanges, but there is plenty of documentation and on-site assistance to help you through the process.
CEO of Yellow Capital
Are you ready for a wild career transition? I went from launching rockets into outer space at the European Space Center to helping Token Issuers launch their Crypto Projects!
Yellow Capital provides advisory services, strategic investments, and prime crypto market making.
Join me on this journey as I share my experiences and expertise in the crypto world, and maybe we'll even launch a few successful projects together!
- Early stage pre-listing
- Investment and Incubation
- We are Prime Market Makers for the projects we invest into.
- We buy up to $5,000,000
Our investment strategy involves providing deep liquidity crypto market making to the projects we invest in. This approach allows us to ensure continuous and substantial liquidity in exchanges. By doing so, we aim to increase market efficiency and reduce price volatility. We help to stabilize prices and reduce the bid-ask spread, which can lower transaction costs for traders. This usually attracts more traders to the markets, by making it easier and less risky to trade your token which can help to increase the overall liquidity and trading volumes both for the benefit of traders and issuers. However, we recognize that providing liquidity also comes with potential risks, which we carefully evaluate and manage as part of our investment decision-making process.