Market maker is a liquidity provider: a complete guide to market creation in crypto

A market maker is a specialized participant in the cryptocurrency market who provides liquidity by simultaneously placing buy and sell orders. This role is critically important for the functioning of modern cryptocurrency exchanges and the digital asset ecosystem as a whole. A market maker is not just a trader seeking profit from price differences, but an essential component of infrastructure that ensures timely execution of trades for millions of market participants worldwide.

Without market makers, cryptocurrency markets would face serious problems: wide spreads between bid and ask prices, sharp volatility spikes when executing large orders, and difficulties entering or exiting positions. Thanks to their constant activity, traders enjoy a stable and predictable trading environment where anyone can buy or sell cryptocurrencies at any time of day — because the crypto market operates 24/7, unlike traditional financial markets.

Who is a market maker: the main role in the crypto ecosystem

A market maker is a specialized firm, institution, or even an experienced trader who constantly posts two-sided quotes — simultaneously offering to buy an asset at one price and sell at another. This two-sided activity creates an electronic “market” even for low-liquidity assets, where otherwise there would be a shortage of supply or demand.

Major financial institutions, hedge funds, and specialized trading firms dominate the market-making space. Industry leaders such as Wintermute, GSR, and DWF Labs manage billions of dollars and serve dozens of crypto exchanges simultaneously. However, a market maker is a role that retail traders can also play by placing limit orders and contributing to liquidity on a smaller scale.

The difference between market makers and regular traders lies in their approach to profit. While ordinary traders aim to buy low and sell high, a market maker primarily earns from the spread — the small difference between the bid and ask prices. This strategy works due to the high volume of transactions: if a market maker executes thousands or even millions of trades per day, even a small spread on each accumulates into significant income.

How does a market maker work: the mechanics of creating liquidity

A market maker operates based on algorithms and strategies that constantly adapt to market conditions. The process looks like this:

1. Placing two-sided quotes

For example, a market maker posts a bid to buy Bitcoin (BTC) at $67,600 and an ask to sell the same Bitcoin at $67,610. The $10 difference is the spread, which serves as the profit margin for the market maker. These orders remain active in the exchange order book, waiting for matching orders from other traders.

2. Executing trades and accumulating profit

When a trader wants to buy Bitcoin quickly, they accept the market maker’s ask price ($67,610). The market maker completes the transaction and immediately posts new quotes to maintain liquidity. This process repeats thousands of times a day, and each small spread adds up to a steady stream of income.

3. Managing positions through algorithms

A market maker is not just a static price provider. Companies engaged in market making use advanced algorithms to dynamically adjust their quotes based on market changes. If volatility increases, the spread widens. If there’s an imbalance in inventory (for example, the market maker has accumulated too much of an asset), orders are adjusted to quickly restore balance.

4. Risk management through hedging

Large market makers don’t just accumulate positions in cryptocurrencies. They also employ risk management systems that hedge their positions across multiple exchanges. When a market maker buys BTC on one exchange, they can almost simultaneously sell an equivalent amount on another, neutralizing price risk while earning profits from price differences between platforms.

5. High-frequency trading (HFT)

Some market makers use high-frequency trading systems that execute hundreds of thousands of orders per second. These systems analyze order book depth, price movement speed, and order flow, automatically adjusting quotes and gaining an advantage through micro-profits on each operation.

Market maker vs. market taker: two main types of participants

Cryptocurrency markets operate thanks to the interaction of two main participant types: market makers and market takers. Both are critical for market health but play very different roles.

A market maker is a liquidity provider, who posts limit orders and waits for other traders to interact with them. Market makers profit from the spread and are not in a rush to execute their orders. Their goal is to stay in the order book constantly, providing trading opportunities for others.

A market taker is a liquidity consumer, who immediately executes market orders at current prices. Market takers want to quickly enter or exit positions and are willing to accept prices from market makers. When a market taker buys, they fill a sell order from the market maker, and the trade is completed instantly.

This balance between market makers and takers creates a healthy market:

• Market makers ensure a continuous presence of orders, reducing spreads and facilitating trading.
• Market takers generate trading activity, ensuring that market maker orders find counterparts.
• A well-balanced system reduces costs for all participants and increases market efficiency.

Leading industry market makers in 2025-2026

Several companies dominate the market-making sphere and provide the majority of liquidity in the crypto market.

Wintermute

Wintermute is one of the largest algo-trading firms in the crypto industry. The company manages significant capital focused on over 300 on-chain assets across more than 30 blockchains. Wintermute provides liquidity on over 50 crypto exchanges worldwide, with a total trading volume measured in trillions of dollars.

Strengths:

• Wide coverage of both centralized (CEX) and decentralized (DEX) exchanges
• Advanced algorithmic trading strategies
• Strong reputation and long-standing market presence

Limitations:

• Focus primarily on large, liquid assets
• May be less attractive for very early-stage projects

GSR (Genesis Securities Research)

GSR is a leader in crypto trading with over a decade of experience. The company offers market-making, OTC trading, and derivatives trading services. GSR has invested in over 100 leading crypto projects and protocols, providing liquidity on more than 60 exchanges.

Strengths:

• Comprehensive financial services
• Deep experience with token launches
• Continuous liquidity management

Limitations:

• Focus mainly on large projects and institutional clients
• Services can be costly for small projects

DWF Labs

DWF Labs is a multi-profile investment and market-making firm in the Web3 space. The company manages a portfolio of over 700 projects, supports more than 20% of projects in the Top-100 CoinMarketCap, and over 35% of the Top-1000. DWF provides liquidity on more than 60 leading crypto exchanges, trading spot and derivatives markets.

Strengths:

• Market liquidity and competitive OTC trading conditions
• Investing in early-stage projects
• High-level project portfolio

Limitations:

• Mainly works with Tier 1 projects
• Strict project evaluation procedures

Amber Group

Amber Group is a leading crypto trading firm specializing in liquidity provision. The company manages trading capital in the billions of dollars for institutional clients and provides liquidity on numerous exchanges with total trading volumes measured in trillions of dollars.

Strengths:

• AI-driven services and compliance
• Comprehensive financial services
• Strong risk management focus

Limitations:

• High entry requirements
• Focuses on many areas beyond market making
• May not be suitable for emerging projects

Keyrock

Keyrock, founded in 2017, is an algorithmic trading company specializing in liquidity provision. It manages over 550,000 daily trades across more than 1,300 markets and 85+ exchanges. The company offers market making, OTC trading, options desks, treasury solutions, and liquidity pool management.

Strengths:

• Algorithmic trading and liquidity optimization
• Custom solutions for various regulatory environments
• Data-driven approach

Limitations:

• Limited resources compared to larger players
• Less well-known company
• Potentially higher fees for bespoke services

These companies utilize advanced algorithms, deep data analytics, and innovative technologies to optimize liquidity and minimize trading inefficiencies. For them, a market maker is a tool to support new token launches and foster healthy, transparent markets.

Benefits of market makers for crypto exchanges and traders

A market maker offers numerous advantages to the crypto trading ecosystem.

Increased liquidity

Market makers continuously place buy and sell orders, ensuring sufficient trading volume and depth in the order book. This allows large trades to be executed smoothly without sharp price swings. For example, buying 10 BTC without market makers could significantly raise the price, but thanks to their liquidity, such a trade is executed close to market prices.

Reducing volatility and stabilizing prices

Market makers adjust spreads based on market conditions, stabilizing asset prices. During market downturns, they place large buy orders to support the price from a sharp drop. During rallies, they add supply to prevent excessive price spikes.

Improving market efficiency

Market makers contribute to more accurate price discovery through continuous quotes that reflect real demand and supply. Narrow spreads created by market makers reduce transaction costs for all traders.

Attracting traders and increasing exchange revenues

Liquid markets attract more traders, leading to higher trading volumes and commissions for exchanges. Exchanges often pay market makers commissions or fees for providing liquidity, creating mutually beneficial partnerships. New token listings also receive initial liquidity from market makers, which is crucial for attracting investors.

Risks and challenges faced by market makers

Despite their benefits, market making involves significant risks.

Market volatility and position losses

Crypto markets are known for sharp price swings. A market maker holding a large position can suffer substantial losses if the market moves against them rapidly. In low-liquidity markets, prices can change so quickly that market makers cannot adjust their orders in time, locking in unfavorable positions.

Inventory management risks

Market makers must constantly hold large volumes of cryptocurrencies. If the value of these assets drops sharply, the company can incur significant losses. This is especially risky with altcoins and new tokens, whose prices are unpredictable.

Technological risks and system failures

Market makers rely on complex algorithms and high-frequency trading systems. Technical failures, coding errors, or cyberattacks can disrupt trading strategies and lead to financial losses. Even minor delays in execution can cause orders to be filled at unfavorable prices.

Regulatory uncertainty

Cryptocurrency regulation varies across countries and is constantly evolving. In some jurisdictions, market making may be considered market manipulation, leading to legal consequences. Compliance costs can be high, especially for companies operating globally.

Competition and profit pressure

Market making is a competitive field, with many firms vying for the same opportunities. As technology advances, bid-ask spreads narrow, reducing profit margins for each market maker. This drives companies to develop more sophisticated strategies to maintain profitability.

Conclusion: Market maker as the backbone of crypto trading

A market maker is an integral part of the crypto market infrastructure, without which modern trading would be impossible. These specialized participants provide 24/7 liquidity, stabilize prices, reduce costs for traders, and enable the market to operate efficiently.

From major algo-trading firms like Wintermute and GSR to more specialized companies, market makers are today a critical element of the ecosystem. Their role continues to grow as the crypto market develops, new assets emerge, and institutional participation expands.

However, market making is a role that involves constant challenges: market volatility, technological risks, and regulatory uncertainty. Despite these difficulties, their contribution to the health of the crypto market remains vital.

For traders and new projects, understanding how market makers operate helps assess the true value of liquidity and the importance of working with reputable market makers to ensure successful market functioning. As the crypto market continues to evolve, the role of market makers will remain central to achieving greater maturity and accessibility of blockchain-based finance.