The cryptocurrency market is still in its early days, with new regulations appearing frequently. While it does offer a lot of opportunities, there is also the potential for people to take advantage for their own gain. While cryptocurrency market making has become a staple, especially with the bear market, wash trading is still a reality in the cryptocurrency market.
However, this isn’t all bad news. While wash trading is bad no matter how it is approached, there is a legitimate need for market making services within the cryptocurrency market.
Liquidity is a major draw for potential traders. It reflects the ease at which assets can be exchanged. So, seeing an exchange with supposedly high liquidity would garner interest. The volume is a telltale sign of the liquidity of an exchange, as the more people that are trading the cryptocurrency, the easier it is to exchange it. This impacts confidence, and the perceived risk of traders because, if there is no volume, there is no trading.
However, ICOs face a major issue with liquidity. How can an unestablished project ensure that things kick off effectively? It would be near impossible for them to gather enough volume right from the get-go. First impressions are important, and so an ICO with a low volume, illiquid asset would quickly be neglected.
Ultimately, liquidity is necessary because the market needs to have liquidity in their order books to ensure the normal operation of the platform.
https://blog.kucoin.com/the-differences-between-market-making-and-wash-trading-sk-st