How do you measure the efficiency of a market maker?

Following to our last article about What Market Makers actually do and Why it Matters, we'll dig deeper into how do you measure the efficiency of a market maker?

When evaluating market makers—especially in the crypto space—the first instinct is often to look at the bid-ask spread. It's a widely referenced metric, easy to observe, and frequently used to gauge market quality. But here's the problem: in crypto, that metric alone doesn’t tell the full story.

While a tight spread is important, it's only a small part of what defines an effective and efficient market-making strategy. To truly understand the impact of a market maker, you have to look deeper—quite literally—into the order book.

‍

Why Spread Alone Isn’t Enough

In many crypto markets, especially in tokens with low to mid-range volume, the quantities available at the best bid and ask levels are often negligible. You might see a spread of just a few basis points, but if there’s only $50 or $100 available at those prices, larger investors are effectively excluded.

This is where a deeper understanding of liquidity provisioning becomes critical.

‍

For Institutions, Liquidity Is a Hard Constraint

Institutional investors don’t just want liquidity—they require it. If they can’t move in or out of a position with confidence, they simply won’t enter the market. This is true whether they’re deploying capital into a newly launched token or rebalancing across exchanges.

A professional market maker plays a critical role in solving this. They help turn a speculative, shallow market into one where serious participants can operate with confidence.

‍

What Actually Changes When a Market Maker Steps In?

👉 Order Book Depth

A skilled market maker doesn’t just post tighter spreads. They build depth across the book, layering bids and offers at multiple price levels. This practice reduces slippage, improves execution for large orders, and encourages other participants to engage.

In short, market makers add stability, not just pricing precision.

‍

What Does Deeper Liquidity Enable?

When market makers provide robust liquidity across multiple tiers of the book, the entire trading experience improves:

• Tighter execution for large trades: Investors can place bigger orders without causing significant price movement.
• Reduced price impact: Market orders don’t push prices up or down as dramatically, making the market more attractive to both retail and institutional traders.
• More confidence across the ecosystem: Traders, arbitrageurs, and token holders are more likely to participate when they know the market can absorb real volume.

‍

Look Beyond the Top of the Book

If you're only measuring spread, you're missing most of the picture. To truly assess whether a market maker is doing their job well, evaluate:

• How much volume is available at different levels
• How the book behaves under stress
• Whether large orders get filled cleanly and consistently

The real mark of efficiency lies in the depth, resiliency, and responsiveness of the order book—not just the numbers flashing at the top.

‍

Want to Assess the Impact of Market Making on Your Token?

If you're looking to unlock deeper liquidity, improve token execution, or prepare for institutional participation, a strategic market-making partner can make all the difference.

📩 Contact us directly to learn how Portofino supports token foundations, exchanges, and investors with high-quality, institutional-grade market making.

‍