Liquidity plays a crucial role in determining asset viability as an investment option. Simply put, the more liquid an asset is, the more likely it is to have higher trading volumes and, therefore, experience price growth. That's why many initial coin offerings require the assistance of a crypto market-making service before they can get listed on exchanges. By providing liquidity to these assets, such services help to create a more stable and attractive environment for traders and investors.

This article reveals the role of crypto exchange market-making and the possible risks that come with it.

The Role of Crypto Market Makers

Market makers are financial entities, high-frequency traders, or specialized companies that cooperate with a crypto exchange and provide liquidity to their trading pairs. They ensure that all emerging orders are executed swiftly and at a fair price.

Market makers profit from the bid/ask spread (buy/sell price). The goal is to make the spread as narrow as possible. Little spread attracts more traders to the market because it creates a more favorable trading environment. Having executed a large number of orders a day, market makers earn their profits by collecting spreads from every deal closed.

To make trades quickly and efficiently, market makers use automated trading algorithms. It helps them conduct thousands of orders daily at a high speed and earn their profit. In such a way, makers provide sufficient liquidity to the market and ensure that other traders get the most of their investments.

Briefly, the role of market makers:

- Increase liquidity

- Reduce asset volatility

- Price formation

- Support for new tokens

Tactics to Avoid in Crypto Market Making

Deceptive activities in the financial market are pretty common, and one such fraudulent practice is ramping. Its essence is placing numerous small buy orders in a short period of time. It creates a false impression that there is a significant buyer in the market, leading to an increase in the price of a token.

Another scammer’s practice is pump-and-dump. It is a fraudulent practice in which a group of traders artificially inflates the price of a low market-cap token by spreading hype around it. Once the price reaches a certain level, these traders sell their holdings. It causes the sharp price to drop, leaving other investors with losses.

Crypto market-making service plays a significant role in creating and maintaining a healthy trading environment in the market. It provides liquidity and reduces asset volatility, making it an attractive investment option for traders and investors.

However, market making can also be subject to deceptive practices like pump-and-dump schemes. Exchanges should choose a reputable and trustworthy market maker to ensure fair and transparent trading.