Markets are evolving at lightning speed. Internet-native capital is flooding through crypto, tokenized assets, and digital trading platforms, transforming how liquidity flows and trades are executed. Unlike traditional markets bound by trading hours, today’s liquidity operates around the clock, across time zones, and at unprecedented speed.
In this piece, we unpack how market making has adapted to this new era, the defining characteristics of internet capital, strategies for capturing liquidity efficiently, and what the next frontier of trading looks like.
The Evolution of Market-Making
Market-making isn’t new. Traditionally, firms captured spreads while providing liquidity in centralized, regulated exchanges.
The digital revolution accelerated trading speed, automated execution, and introduced decentralized finance (DeFi). DEXs and AMMs replaced human intermediaries with smart contracts, enabling anyone to provide liquidity or trade assets globally.
Example: A traditional equity market maker focuses on a few ETFs during market hours. A crypto liquidity provider can simultaneously operate across multiple chains and platforms 24/7, capturing opportunities.
Internet Capital and Its Characteristics
Digital capital never sleeps. Moving at lightning speed across chains, exchanges, and wallets, it’s reshaping markets and rewriting the rules of liquidity. Everyone from retail traders to whales can plug in, track flows in real time, and react instantly. But with this speed and openness comes fragmentation and volatility, making the landscape as thrilling as it is unpredictable.
Digital capital characteristics include:
Speed & Volume: 24/7, instantaneous, global.
Transparency: Public ledgers let you see liquidity and flows as they happen.
Fragmentation: Capital spread across exchanges, chains, and pools.
Accessibility: Open to all, but more eyes and hands mean more swings.
Modern Market-Making Strategies
Market-making today is no longer just quoting bid and ask prices, it’s about orchestrating liquidity across a fragmented, global, 24/7 market. Modern strategies combine technology, analytics, and risk management:
Cross-Platform Liquidity Provision: Market makers deploy capital across centralized exchanges (CEXs), decentralized exchanges (DEXs), and OTC desks. For example, a firm might provide liquidity for ETH/USDT on Binance, ETH/USDC on Coinbase, and simultaneously supply ETH liquidity on Uniswap pools, capturing fees in multiple venues.
Arbitrage & Price Optimization: Price discrepancies between exchanges or across chains create arbitrage opportunities. Algorithms detect arbitrage opportunities and execute trades instantly, capturing the spread before it disappears. Some firms even hedge these trades using derivatives to lock in risk-adjusted profits.
AI & Algorithmic Execution: Machine learning models predict short-term volatility, optimize bid-ask spreads, and anticipate market flows. For example, an AI-driven bot might widen spreads during high volatility to reduce inventory risk or automatically rebalance liquidity pools in protocols.
Dynamic Risk Management: Modern market-making requires continuous monitoring of exposure, slippage, and liquidity impermanence. A DeFi liquidity provider might allocate funds across multiple pools, but dynamically withdraw or rebalance when volatility spikes.
Concrete Example: Imagine a firm supplying liquidity to Uniswap for a popular token. The bot detects a price mismatch between Uniswap and a CEX. It automatically sells some tokens on the CEX, buys on Uniswap, adjusts its pool allocation, and hedges the remaining exposure via a derivative contract. All of this happens in milliseconds, capturing small spreads at scale.
Case Studies & Real-World Examples
Digital capital isn’t just theoretical, it’s already shaping markets in real time. From decentralized exchanges to institutional strategies, these examples show how liquidity, speed, and technology are being leveraged to create new opportunities and efficiencies.
Real-world examples include:
DEXs: Providers on Uniswap or Curve earn fees and arbitrage profits via automated tools.
Institutional Flow Strategies: Algorithms allocate capital across traditional and crypto assets based on market conditions.
Traditional Markets Adapting: Brokers and exchanges integrate APIs and blockchain solutions to meet digital liquidity demands.
The Future of Market-Making
Market-making is evolving fast, driven by tokenization, DeFi innovation, and AI-powered strategies. The next generation of liquidity provision will span multiple chains, automate risk, and unlock new opportunities for both retail and institutional participants.
Key examples include:
Tokenization: Equities, bonds, and real estate will become tokenized, opening fresh avenues for liquidity.
DeFi Growth: Expanding protocols create innovative ways to capture fees and provide liquidity.
AI/ML Adoption: Smarter spread management, predictive volatility, and automated risk mitigation.
Cross-Chain Liquidity: Efficiently managing multi-chain liquidity pools will be crucial.
Market making firms that combine technology, insight, and agility will lead in this new era. Market-making is no longer about dominating a single platform, it’s orchestrating liquidity across a variety of networks.
Conclusion
Market-making has evolved from human-driven, centralized operations to a fast, transparent, global endeavor. Internet capital demands speed, adaptability, and technology-driven strategies.
Understanding and embracing these changes is no longer optional, it’s essential for shaping the next decade of markets.
