Market maker

A market maker is a trader or firm that continuously offers to both buy and sell an asset, posting bids and asks on an order book. By doing so it provides liquidity, so other traders can buy or sell quickly, and it earns money mainly from the spread and from exchange fee rebates.

Professional market-making firms are active on most large crypto exchanges, and new token projects often hire them to keep their markets liquid after listing. Exchanges sometimes run their own market-making desks, which can create conflicts of interest.

In DeFi, automated market makers (AMMs) do the same job with smart contracts: liquidity providers deposit pairs of tokens into a pool, and a formula sets the price. Market making carries risk, including being caught on the wrong side of a sharp move. Undisclosed deals in which market makers receive tokens on favourable terms have also been linked to price manipulation in small-cap tokens.