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What Is the Role of a “Liquidity Provider” and How Does It Differ from a Market Maker?

An LP passively supplies assets to a pool for fees; an MM actively quotes prices and manages inventory risk to profit from the bid-ask spread.
Greeks.Live22.11.25

What Is the Role of a “Liquidity Provider” and How Does It Differ from a Market Maker?

A liquidity provider (LP) supplies assets to a trading pool, typically in a decentralized exchange (DEX), to enable others to trade. They earn fees from the trades that occur in the pool.

A market maker (MM) actively quotes bid and ask prices on an exchange, adjusting them rapidly to profit from the spread and manage inventory risk. While both contribute to market liquidity, the LP is passive, earning fees based on pool activity, whereas the MM is an active, professional trader managing risk and seeking profit from the bid-ask difference.

How Does a Centralized exchange’S Market Maker Differ from an AMM’s Liquidity Provider in Managing Price Risk?
How Is the Bid-Ask Spread Calculated for an Options Contract?
How Does ‘Impermanent Loss’ in DeFi Relate to a Market Maker’s Inventory Risk?
How Is the Bid-Ask Spread the Implicit Cost of a Trade for the Market Maker?

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