What Is the Role of Market Makers in Providing Liquidity and Influencing Arbitrage Opportunities?

Market makers play a crucial role in providing liquidity to cryptocurrency exchanges by placing both buy and sell orders for a particular asset. This liquidity makes it easier for traders to execute their orders without significantly impacting the price, which is essential for arbitrage.

By narrowing the bid-ask spread, market makers can reduce the potential for arbitrage opportunities. However, they can also create arbitrage opportunities when their own pricing models differ from the broader market.

Arbitrageurs often rely on the liquidity provided by market makers to execute their strategies efficiently.