Definition ∞ Market maker liquidity refers to the presence of standing buy and sell orders provided by market makers, which facilitates efficient trading on digital asset exchanges. Market makers are entities that continuously quote both bid and ask prices for a given asset, narrowing the spread between them and absorbing temporary imbalances in supply and demand. Their activity ensures that other traders can execute orders quickly and with minimal price impact. High market maker liquidity indicates a healthy and active trading environment.
Context ∞ Discussions around market maker liquidity frequently appear in analyses of digital asset exchange performance, trading volumes, and market stability. A reduction in this liquidity can lead to increased price volatility and difficulty in executing large trades. Regulatory scrutiny often examines the role of market makers in maintaining fair and orderly markets.
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