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Crypto Terms:  Letter M

What is Market Maker, Market Taker?

Market Maker, Market Taker - a market maker is a person who creates an order to buy or sell at a specified price, while a taker verifies the order and executes the buying or selling at the specified price.
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Let's find out Market Maker, Market Taker meaning, definition in crypto, what is Market Maker, Market Taker, and all other detailed facts.

Since makers and takers have distinct motives, makers pursue gains from volatility or bid-ask spread disparities, whereas takers demand rapid exits or entrances. Hence, there are far more makers than takers in a market. Makers also trade more regularly and in greater quantities than takers.

Market makers are crucial because they offer liquidity and dimension to markets, expecting to gain from bid-ask spreads or projected price movements during market instability. Market participants require this liquidity and responsiveness in order to buy or exit positions.

The orders made by market makers do not necessarily trade immediately. Often, such orders stay in the order books until they are matched.

The classic order book methodology is used to administer markets, crypto exchanges, and early DEXs. An order book showcases all purchase and sell orders placed by makers for takers to fulfill.

However, even though order book DEXs finally gained popularity by establishing market segments for various cryptocurrencies, particularly ERC-20 tokens on the Ethereum platform, current DEXs tend to adopt the automated market maker (AMM) methodology to address the Catch-22 liquidity problem.

Moreover, as seen by order books, numerous centralized exchanges are market makers that add liquidity and dimension to markets in a way to lure takers. This increases trade volume and liquidity, which attracts even more makers to give their own liquidity. The effectiveness of this strategy was relevant in understanding why initial DEXs struggled to garner liquidity on decentralized marketplaces. 

There just wasn't an adequate volume or favorable pricing that takers would find appealing to trade, since there weren't enough makers to offer liquidity and depth. There was no reason for producers to offer liquidity if they could readily unload it somewhere else on managed markets if there were no buyers.

All in all, market makers are critical to the platform's appeal as a trading venue for exchanges that operate a maker-taker structure. Exchanges reward makers with reduced fees since they supply liquidity. Takers, on the other hand, exploit this liquidity to quickly acquire and sell assets.