By Anna Churakova
By Tamta Suladze

How Crypto Liquidity Impacts Cryptocurrency Exchanges

How Crypto Liquidity Impacts Cryptocurrency Exchanges

Adequate liquidity plays a key role in the optimal operation and resilience of finance exchanges, be they conventional or digital. Trading is not solely based on the high trading volume but also on the efficiency of the swap. 

The impact on owners' earnings from transactions makes this crucial for virtual market businesses. It plays a role in maintaining stable prices, building investor trust in the market, and shaping the perception of exchanges and swaps in the global fiscal ecosystem.

The role of a liquidity partner in the rapidly growing crypto markets is also paramount as it matures and highlights the need for a comprehensive knowledge of the role of a liquidity supplier.

This article explores the significance of crypto liquidity and liquidity suppliers for the digital landscape.

Key Takeaways

  1. Liquidity is one of the most crucial elements in any market.

  2. It can be affected by trading volumes, regulations, market depth, etc.

  3. LPs increase crypto market liquidity by adding buy and sell orders.

  4. Consider aspects like security, pricing, risk handling, etc., to pick the best provider.

What Does Liquidity Mean In Crypto?

Cryptocurrency liquidity refers to the ease of buying or selling a digital asset close to its market price. It determines the quantity of digital assets prudent investors will buy or sell. It is a critical aspect of token trading, affecting market efficiency, price stability, transaction speed, and overall market functionality.

liquidity in crypto

Crypto liquidity can be measured using two methods. The most common method is to calculate the number of tokens or coins traded in a market during a specific timeframe, with 24-hour trading volume being the most popular. Greater trading volume indicates higher trading activity, but 24 hours alone is insufficient to determine a market's liquidity, as trading volume may fluctuate during extended bear or bull runs.

The bid-ask spread is another crucial method for assessing the liquidity of digital assets, calculated by dividing the highest bid price by the lowest ask, indicating more liquid exchanges.

Crypto sphere liquidity can be broken into several types: exchange, asset, network, deFi, and stablecoin liquidity. 

Exchange one refers to the availability of buy and sell orders on specific digital coin exchanges. 

Asset liquidity measures the depth and volume of a market. 

Network liquidity, influenced by transaction fees and congestion, refers to a blockchain network's ability to handle transactions quickly.

DeFi liquidity is specific to decentralised finance protocols and focuses on user-contributed liquidity pools. 

Stablecoin liquidity ensures consistent value and supply for easy exchange.

Fast Fact

Fast Fact

Besides BTC and ETH, high liquidity crypto coins are Tether, USDC, Binance Coin, XRP, Binance USD, Cardano, SOL, and DOGE.

Importance of Liquidity in Crypto Exchanges

Liquidity is a fundamental element in virtual token trading, influencing market efficiency and stability and contributing to a more mature and accessible trading environment. It acts as a stabilising force, cushioning against wild price swings and fostering confidence among participants.

High liquidity benefits both exchange and market participants. It ensures a stable market and smooth transactions without significant price fluctuations by reducing the bid-ask spread. 

Due to the larger number of market participants, it improves transaction speed and allows traders to buy or sell assets quickly at market prices without delays. They also have narrow bid-ask spreads, reducing the cost of entering or exiting a position. Liquid markets minimise slippage, allowing traders to execute orders more closely to their intended prices.

On the other hand, low liquidity levels can cause market volatility, slippage, and limited trading volumes.

Most crypto exchange development processes focus on reinforcing exchange platforms with features that improve liquidity. This leads to better and fair prices for everyone, market stability, quick transaction time, and more accuracy for technical analysis.

Market makers (MMs) play a pivotal role in improving liquidity in the digital market. They build valuable crypto exchange platforms and establish efficient market mechanisms, providing sufficient liquidity to reduce price volatility and enable traders to purchase and sell digital assets for reasonable prices. 

MMs create opportunities and benefits for investors by ensuring quick processing of orders, well-stabilised spreads, and making virtual money exchange platforms more convenient and efficient for market participants.

What Can Affect Crypto Liquidity

Various factors influence virtual coin exchange liquidity, including regulations, trading volume, market depth, trading pairs diversity, and MMs and liquidity providers.

High trading volumes indicate a consistent flow of assets, facilitating smoother transactions. 

Market depth refers to the variety of orders at different price levels within an exchange, allowing substantial transactions without significantly impacting asset prices, indicating enhanced liquidity.

factors that affect liquidity.

The diversity of popular trading pairs, such as those involving major coins like BTC or ETH, seriously impacts liquidity. 

Market makers and liquidity providers play a crucial role in sustaining and enhancing liquidity by continuously placing buy and sell orders, ensuring a counterparty for trades, and reducing spread, increasing the exchange's attractiveness to traders.

Regulations can significantly affect digital asset liquidity, potentially leading to increased prices and market decreases if countries ban trading or make it difficult for individuals to buy and sell digital tokens.

How Crypto Exchanges Get Liquidity

Crypto swaps can source liquidity in different ways:

The first method is third-party MMs. It involves MMs and market takers. Market takers value holding assets and may put more money than the market price, while MMs buy or sell assets for profit. Crypto exchanges often collaborate with other popular swaps or MMs to provide liquidity. Market takers may receive additional incentives, such as compensation for incomplete trades and daily or weekly updates on compensation. 

Cross-exchange market making is another way to get liquidity. It involves traders acting as MMs. For example, they buy assets listed in the maker swap and sell them instantly in the taker exchange, thereby making a profit without losing capital. They can also sell assets in Maker Exchange for the best offer, generating revenue through simultaneous transactions.

Liquidity mining is another process that involves gaining liquidity through various methods, including crypto stacking, where cryptos remain in the wallet for a specific time period and receive rewards for holding assets in the exchange. Open-source software is distributed to all participants, and miners can set parameters to the software, and reward pools are generated automatically by an algorithm.

The DeFi industry works differently. It relies on smart contracts-enabled liquidity pools for its operations, which emerged as a solution to the liquidity crisis in the DeFi sector. Automated Market Makers allow permissionless and automatic trading, paving the way for decentralisation. Traders trade against the liquidity pool of these MMs, allowing for decentralised trading. 

Explaining The Role Of A Cryptocurrency Liquidity Provider

LPs add buy and sell orders to markets to increase liquidity. They ensure trades are executed as planned and at the desired prices. They ensure there are enough buy and sell orders, even during low demand periods, to avoid difficulty in executing transactions and price fluctuations.

There are two types of liquidity providers for cryptocurrency exchange: individual LPs, who provide liquidity to the market using personal funds or a small team, and institutional LPs, which are larger entities with significant capital, such as crypto exchanges, brokerages, and market-making firms, that specialise in providing this kind of services.

how LPs work

LPs significantly impact crypto prices by reducing price volatility and enhancing market depth. They prevent sudden price spikes or crashes due to market imbalances, making the market more attractive to traders. The presence of LPs also enhances market depth, allowing traders to execute larger orders with minimal price impact, creating a more robust market. 

However, liquidity suppliers face challenges such as market manipulation risks due to the decentralised and unregulated nature of the digital coin market. Additionally, the ever-evolving regulatory landscape poses a challenge for LPs, as they must balance compliance with operational efficiency. 

Despite these challenges, LPs have contributed to the growth and maturation of the crypto market, paving the way for increased participation and improved market conditions. 

Choosing The Optimal Liquidity Supplier

When picking an LP for a reliable partnership, it is essential to consider numerous factors. Here are some key aspects that must be taken into account:

how to choose a liquidity provider.


When choosing a liquidity service supplier, consider commission levels and transaction conditions. Many offer democratic prices and flexible tariffs, allowing budget-friendly options. Study transaction conditions for accurate commission sizes.

Trading Volumes

A reliable crypto LP should have access to high trading volumes and a wide range of markets to maintain a liquid market. They should redistribute liquidity between these markets when needed, ensuring a smooth and streamlined trading domain.


Security is crucial for reliable access to markets and organisations' services. It's essential to consider the level of protection provided by LPs, as well as cyber security, as these factors are key considerations.

Risk management

Addressing risks is crucial for the success of any LP, ensuring robust operations in all market conditions. Top providers avoid malpractice cases, such as pump-and-dump schemes and wash trading, and do not promise specific trading volumes or crypto prices.

Regulatory compliance

Crypto-trading is a highly secure field with strict requirements for liquidity partners and organisations to prevent fraud. Regulatory compliance ensures fund safety and adherence to business norms. Providers without licensing and registration information should be considered for potential work, as they must pass registration and licensing procedures.

Top 5 Best LPs In The Crypto Market

Here is a list of five of the best crypto LPs that comply with all the above-mentioned requirements and provide outstanding trading experience.


B2Prime is an industry-leading Prime of Prime liquidity provider renowned for its innovative solutions in the financial sector. It offers a comprehensive array of over 225 instruments across six asset classes, including FOREX, Crypto CFDs, Spot Indices, Precious Metals, Commodities, and NDFs. The company was the first to introduce crypto CFDs based on spot and perpetual futures, as well as NDFs in the form of CFDs, providing the advantage of next-day settlements. 

B2Prime's robust financial foundation, strengthened by its services to numerous institutional and professional clients, enables it to meet and exceed client demands while enhancing leverage opportunities. The company ensures access to deep liquidity pools from reliable providers, tight spreads, and fast execution through advanced technology platforms and integrations like B2Trader, cTrader, oneZero, Prime XM, Centroid, TFB, TradeLocker, Your Bourse, and FX Cubic.


Empirica offers a Liquidity Engine solution that provides free liquidity, in-depth analytics, and strong exchange relationships for token listings. This innovative approach ensures projects can maximise their potential returns without losing fees, simplifying the complex world of crypto money. However, Empirica's model may seem restrictive for larger projects requiring varied crypto liquidity solutions.


Genesis is a leading crypto market maker delivering trading, borrowing, and lending cryptos across 50 countries. It is regulated by the SEC and FINRA and provides users with a vast crypto liquidity pool for custody, working capital, hedging, and speculative investments. Genesis focuses on security and compliance, creating a transparent trading environment for its global clientele. With a reputation for efficiency, Genesis offers world-class pricing and access to over 100 coins, attracting institutional clients.


Cumberland combines financial expertise with cryptocurrency liquidity services. With over 25 years of experience, the company focuses on established cryptos and offers liquidity. Cumberland specialises in crypto markets, offering liquidity solutions for low liquidity and large-scale institutional trading. However, its focus on larger cryptocurrencies may deter projects based on newer or niche tokens.


GSR, a pioneer in the crypto space since 2013, offers a combination of old-world wisdom and new-age strategies. They provide custom liquidity solutions for each project, understanding that each project is unique. GSR specialises in algorithmic digital asset trading, providing cryptocurrency market liquidity, services, OTC trading, and other financial solutions in the digital money arena. However, their bespoke approach may not resonate with all projects or traders.

Final Takeaways

Crypto liquidity is a crucial element in the architecture of coin exchanges. It aids in upholding a competitive and fair market, enhancing the appeal of trading. As the digital currency market expands, exchange operators must ensure sufficient funds are available for trading. This will establish a reliable and effective trading atmosphere and contribute to the evolution of more transparent, active, and robust finance markets.

Crypto LPs, in partnership with swaps, play a crucial role in the virtual coin market. They ensure traders have access to assets, promote price stability, market performance, and risk mitigation, and foster a dynamic ecosystem.


How does liquidity affect volatility?

Elevated liquidity can buffer against extreme price swings, as even large orders have the tiniest impact on the asset's price, while low liquidity can cause significant price fluxes even with smaller orders.

Who supplies liquidity in crypto?

A crypto LP  provides supply-side and by-side liquidity to swaps, enabling traders to execute transactions quickly and at desirable prices.

Why is liquidity important for exchanges?

Liquid exchanges have tighter spreads, downsizing price disparity, attracting traders for swift trade fulfilment without significant price slippage, and defending investment value.

Is it possible to launch a token with absent liquidity?

Liquidity is crucial for new tokens as it ensures cryptocurrency market accessibility, prevents price volatility, and increases investor interest.

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