How Is the Concept of Gamma Relevant for a Cryptocurrency Market Maker?

Gamma is critically relevant for a cryptocurrency market maker as it dictates the risk and rebalancing requirements of their options book. Market makers are typically short Gamma, meaning they profit from Theta (time decay) but are exposed to large losses from sharp price movements.

High Gamma exposure means the market maker must constantly rebalance their Delta-hedge using the underlying crypto or futures. Managing Gamma is essential for controlling hedging costs and ensuring the stability of their P&L, especially in the highly volatile crypto markets.