What is the role of cryptocurrency liquidity providers?

In the cryptocurrency field, liquidity suppliers are invaluable to create a smooth trading environment. These individuals or organizations provide liquidity, making it easy for traders to buy and sell digital assets quickly and easily. Without liquidity suppliers, the efficiency of the cryptocurrency market will be greatly reduced and price volatility will intensify.

So, who can become a liquidity supplier and how it works? Please read the following for details.

Cryptocurrency liquidity supplier

Liquidity suppliers (LPs) are businesses and individuals that inject pay and sell orders into the financial market, with the aim of increasing market liquidity. Liquidity suppliers ensure that transactions can be executed as planned at the transaction prices expected by the relevant parties.

By providing liquidity to trading platforms, these players play an important role in ensuring that the cryptocurrency market continues to flourish. The outstanding role of liquidity suppliers is reflected in the following areas:

Promote smooth transactions

Liquidity suppliers help ensure that buy and sell orders in the market are always adequate, even when demand is sluggish. Assuming that the number of buyers and sellers is insufficient, the transaction will be difficult to execute and the price may fluctuate violently.

Improve price stability

Liquidity is an indicator to measure the difficulty of asset trading. A liquid market refers to a market where buyers and sellers have sufficient numbers and are easy to find counterparties. On the contrary, it is difficult to find traders who buy and sell cryptocurrencies at their favorite prices in markets with insufficient liquidity. Low liquidity will lead to large price fluctuations because small changes in supply and demand will have a huge impact on prices. Liquidity suppliers inject buy and sell orders into the market to ensure orders are executed quickly at the planned price.

Close the price sliding spread

Liquidity suppliers help limit price sliding spreads, i.e. the difference between the expected execution price and the actual execution price, thereby making up for the gap between buyers and sellers.

The potential reasons for sliding spreads are the lack of liquidity on the trading platform or the high volatility in the market.