Market Making Algorithms
Automated placement of bid/ask orders for liquidity — Citadel, Jump Trading.
Market making is a strategy where a firm (or algorithm) continuously places bid (buy) and ask (sell) orders, earning the spread — difference between bid and ask price.
How it works:
•Place bid at $99.95 and ask at $100.05
•Spread: $0.10 (0.1%)
•Each time someone trades → market maker earns spread
•Requires: fast server, smart algorithm, good exchange connection
Crypto market makers:
•Wintermute — leading EU market maker (hacked in 2022)
•Jump Trading — Chicago firm, crypto expansion
•Alameda Research — FTX's market maker (collapsed with FTX)
•GSR Markets, QCP Capital, Flowdesk
Role for crypto project:
•New project without liquidity hires market maker
•Market maker receives token loan for MM activity + fee
•Ensures tight spread and order book depth
MM in DeFi:
•AMM (Automated Market Maker) — algorithmic market maker
•Liquidity provided by LPs (liquidity providers)
•x*y=k formula on Uniswap
Why MM matters for investors:
•Good liquidity → less slippage
•Poor MM → easy to manipulate price
•Always check order book depth before large order