Liquidity Provider vs Market Maker: Is There Any Difference?
Over the past years, the market of digital assets underwent
probably the greatest changes in its existence. Starting from 2021, large
companies started to actively tap into the crypto sector. These are
technological companies like MicroStrategy and Tesla, as well as big banks like
Morgan Stanley, BNY Mellon, and Citigroup, payment processors like PayPal, etc.
Companies invest billions of dollars in crypto, so they
require a safe and legal environment for institutional crypto trading. Large platforms like Binance, WhiteBIT, and other popular
exchanges have departments for VIP or institutional customers and provide
sufficient liquidity, protection, custody services, and compliance. In
addition, institutional investors and businesses are offered sophisticated
trading tools, affiliate programs, and services on their own tokens
listing.
Large financial entities that participate in crypto trading
play a crucial role in ensuring liquidity, as they pour large trading volumes
into the market. It creates a stable market where trades are conducted smoothly
and quickly. To provide liquidity and make a profit from it, investors should
partner with a market-maker crypto exchange.
There are two ways to ensure liquidity in the market:
- engage in crypto market making;
- become a liquidity provider.
What is a Liquidity Provider (LP)?
That may be financial companies, banks, or non-bank
financial institutions that serve as a facilitator of trade. With their help,
traders conduct trades efficiently and quickly. LPs place orders for both
buying and selling assets, ensuring there is sufficient supply and demand in
the market.
Market Making in Cryptocurrency
They are connecting buyers and sellers on a crypto platform.
Same as LPs, they place bid and ask prices on specific trading pairs, and are
always ready to buy or sell them at the quoted rates. This ensures a stable
flow of transactions in the market.
So the difference between LPs and market makers lies in
their approach - LPs ensure there are enough buyers and sellers; market makers
are more actively participating in trades acting as connectors between buyers
and sellers.
Conclusion
The crypto market got a huge “push” as institutional
investors stepped in. They, in turn, contribute to the market’s liquidity and
maturity by injecting large trading volumes. There would be no smooth and
efficient transaction flow without market-making in crypto. In fact, these
market players contribute to the overall health and stability of supply and
demand for institutional crypto trading.
