The Role of Market Makers in Crypto Trading (09)

For the last 9 Posts, the topic of discussion is the role of market makers in crypto trading. In the last part, we come to an end with the topic of automated market makers (AMM) in crypto trading which is normally being practiced in an automatic system of decentralized exchange (DEX). There are a lot of decentralized exchanges where the price is determined by the trading according to the formula that automatically calculates the situation. So in the last part of this topic let's talk about the automatic market maker system in short.

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From previous discussions, it is clear that the role of the market maker cannot be ignored. To help trading to happen market makers is a must. But in decentralized exchange who will play the rule? The auto calculative system is used here which is called automated market maker. The systems come into existence in this systems to facilitate trading. AMMs like Uniswap and SushiSwap are very common in this sector. This system of market making in crypto by using liquidity pools rather than relying on individual market makers gained popularity. In an AMM system, users contribute liquidity to a pool in exchange for a share of the trading fees.

This has democratized market-making to some extent. Here regular traders basically provide liquidity and earn profits from the bid-ask spread but the overall system is vulnerable to impermanent loss means the liquidity providers can lose money if the price of the assets in the pool changes significantly. For crypto exchanges, market makers are essential partners. While traditional market-making remains dominant in centralized exchanges, AMMs represent an exciting new feature in the crypto sector. Although the growth in the AMM sector is huge so far still a lot of adaptations and innovations to come in the AMM system of decentralized exchange.

~ Regards,
VEIGO (Community Mod)

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