Market makers: the challenges when dealing with digital assets

Market makers are essential for ensuring liquidity in traditional financial (TradFi) and decentralised finance (DeFi) markets by continuously providing buy and sell orders, which helps keep assets tradable. Many of the traditional market makers that have served TradFi markets and exchanges are now active in the DeFi sector, providing liquidity through automated market-making (AMM) algorithms and liquidity pools: automated market makers (AMMs) are decentralised exchange protocols that use mathematical algorithms to price assets and provide liquidity, replacing traditional order books with user liquidity pools.

Selection of market makers

Source: Google

These pools which contain paired tokens (e.g., ETH/USDC) enable traders to swap assets directly, adjusting prices dynamically based on supply and demand. Operating without intermediaries, AMMs such as Uniswap, SushiSwap and PancakeSwap exemplify DeFi principles so allowing users to trade directly from wallets whilst democratising liquidity p…