Market Maker
Participant that provides buy and sell liquidity to a market
Definition
Market Maker means participant that provides buy and sell liquidity to a market. In DeFi, the concept matters because it affects risk, return, liquidity, governance, or execution assumptions.
Market Maker is a DeFi term used to understand participant that provides buy and sell liquidity to a market.
Example
A market maker quotes both bids and asks for ETH on an exchange, earning spread while helping traders execute.
How it works
In practice, the concept shows up like this: A market maker quotes both bids and asks for ETH on an exchange, earning spread while helping traders execute.
Why it matters
Market Maker matters because small misunderstandings can turn into bad pricing, liquidation, governance, custody, or smart-contract risk.
What to check
Compare fees, slippage, liquidity, volatility, and execution risk. The main checks are: Inventory risk; Adverse selection; Liquidity withdrawal during stress.
Risks to Consider
- Inventory risk
- Adverse selection
- Liquidity withdrawal during stress
Common Questions
What does Market Maker mean in DeFi?
Market Maker means participant that provides buy and sell liquidity to a market.
How is Market Maker used in practice?
A practical example: A market maker quotes both bids and asks for ETH on an exchange, earning spread while helping traders execute.
What should I check before relying on Market Maker?
Compare fees, slippage, liquidity, volatility, and execution risk. The main checks are: Inventory risk; Adverse selection; Liquidity withdrawal during stress.