Analyzing Crypto Market Liquidity Providers

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Today I will like to analyze the cryptocurrency market liquid providers as we take a deep look into what they are and the types of Liquidity Providers we have here as all too often we are not aware of these and the strategic utilise.

When we hear liquidity providers many people don't really know what it is or what role they play, well without liquidity providers there won't be much of any buying or selling as these are the ones ensuring for the volume needed to facilitate the buying and selling in the cryptocurrency market.

Without liquidity providers trades would just impact prices to levels never seen before, if people buy price would drastically be affected more than what we see today same with selling in the absence of liquidity providers, these play a crucial role in ensuring there is always enough volume in the market and much of the liquidity in exchanges today that ensure buying and selling seamlessly is being provided by liquidity providers in the cryptocurrency market.

The liquidity providers play a crucial role in ensuring steady market volume for buying and selling to happen here without much mishaps.

So now we know there roles on the market I will like to talk about some of the liquid providers the types that is that is present in this market.

• Market Makers

The market markers are those who at all times ensure that both buyin and selling orders are always provided in the market at a continuous space without letup.

The market markers are the type of liquidity providers that profit from spread which is the slight difference between the bid and ask price that they have set at time.

• Automated Market Makers (AMMs)

Automated market markers otherwise known as AMMs are mostly found only in decentralized exchanges these are liquidity providers who ensure that trades happen or take place in decentralized exchanges and they are also responsible for ensuring the proper management of liquidity pools.

The trades are facilitated here easily and automatically using smart contract which ensure for an automatic execution, so AMMs is another type of liquidity providers though found only in decentralized exchanges.

• Institutional Liquidity Providers

The institutional liquidity providers ensure that just like AMMs that there is liquidity this time not on decentralized exchanges but on centralized exchanges, they sought to provide needed liquidity to facilitate trading activities in centralized exchanges and any other trading firms as the case maybe.

The institutional liquidity providers are mainly responsible for this and for automated market makers who provides liquidity using smart contracts institution liquidity providers do it with lots of algorithms which are highly sophisticated, this is how they ensure exchanges and other trading firms have liquidity.

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• Arbitrage: These is a kind of strategy which deals with trying to take advantage in the difference in price at a time across multiple exchanges, arbitrage is a strategy ensure that slight difference in prices in many markets are being exploited accordingly.

• High-Frequency Trading: This is use of sophisticated algorithm and these algorithm helps in ensuring that any movement of price at all no matter how small are being capitalize, it's using this algorithm to read and detect minute price movement and try to profit from these movements as fast as possible and this could only be possible with the use of this algorithm.

Thw use of this sophisticated algorithm to profit from small market movement is really the idea of high frequency trading.

• Yield Farming: Well the idea is this, users can contribute liquidity to decentralized platforms with what goal, to have a chance to earn. Provide liquidity to dex and earn rewards from your contribution, the idea is pretty simple. So this is just one of the many strategic involved.

It's nice actually to always watch out for the volumes or the amount of liquidity and exchange have before trading with it, ensure they have huge volumes and there is enough hedge funds providing liquidity ifnot we would be left hanging and won't be able to trade as much as we would want in a much less trading volume environment.