Market Makers in Crypto: How They Shape Market Liquidity

Liquidity is the blood of the cryptocurrency market. Without it, traders face insurmountable spreads, huge delays in order execution, and unpredictable price jumps. This is where market makers come into play. These specialized trading operators work around the clock, ensuring stability in the digital assets ecosystem. But who are they really, and how does this system function?

The Role of Market Makers in Modern Cryptocurrency Trading

A market maker is a trading operator, institution, or algorithmic trading company that constantly quotes buy and sell prices for specific assets. Their two-sided activity creates an effect where any trader can instantly execute a transaction without waiting for a counterparty.

Imagine a world without market makers. Trying to sell 10 BTC would mean searching for several different buyers willing to accept your price. The spreads between buy and sell prices would widen to levels that make trading unprofitable for the average investor. Price volatility would reach extreme levels, especially on low-liquidity pairs.

Market makers solve this problem differently. They generate income not from guessing the price direction (like traditional speculators), but from constantly capturing the spread — the microscopic difference between the price at which they buy and sell.

How Exactly the Market Making Process Works

A market maker’s operation is based on algorithmic calculations and real-time position management.

First stage: two-sided quoting. The market maker places a buy order for Bitcoin at $88,750 and simultaneously a sell order at $88,760. This $10 spread serves as their profit margin. At first glance, this looks like a tiny income, but scaling changes this.

Second stage: execution and accumulation. When a retail trader decides to buy BTC at the current price, they accept the market maker’s sell order. Simultaneously, the market maker immediately places new orders, filling the order book. The spread accumulates through hundreds or thousands of trades per day, creating a steady stream of income.

Third stage: inventory management. This is a critical part. Market makers don’t just mechanically place orders — they carefully manage their asset portfolio, often hedging positions across multiple exchanges simultaneously. If they accumulate too much Bitcoin, they can sell some on another exchange at a higher price, minimizing settlement risk.

Fourth stage: market adaptation. Most modern market makers use high-frequency trading algorithms (HFT), which analyze order book depth, volatility, order flow direction, and place orders with millisecond periodicity. These systems allow them to remain profitable even during sharp market movements.

Market Makers and Market Takers: Two Poles of Trading

There are two types of participants creating liquidity dynamics in the market:

Market makers add liquidity. They place limit orders — requests that remain in the order book waiting for a counterparty. These orders are not executed immediately, giving other traders time to choose the optimal entry point.

Market takers remove liquidity. They execute market orders, instantly accepting the current buy or sell price. When a trader wants to quickly acquire BTC at $88,760, they become a taker, “taking” the liquidity provided by the maker.

The balance between them is critical. If there are more makers than takers, spreads narrow, but trading volume decreases. If there are more takers, spreads widen as makers require compensation for risk. An ideally balanced system reduces slippage, improves order book depth, and minimizes transaction costs for all participants.

Major Market Making Players in 2025

The cryptocurrency market is controlled by several large firms dominating liquidity provision:

Wintermute manages approximately $237 million in assets across more than 300 on-chain instruments, distributed over 30+ blockchains. As of November 2024, their total trading volume exceeded $6 trillions on 50+ exchanges. The company is known for advanced algorithmic strategies and broad coverage of both CEX and DEX platforms.

GSR has over 10 years of experience in the crypto market and has invested in more than 100 protocols and Web3 companies. They provide market making, OTC trading, and derivatives services on 60+ exchanges, serving token issuers, institutional investors, and miners.

Amber Group manages approximately $1.5 billion in trading capital for over 2000 institutional clients. Their total trading volume exceeds $1 trillion. The company emphasizes regulatory compliance and uses AI to optimize strategies.

Keyrock, founded in 2017, processes over 550,000 trades daily across 1,300+ markets and 85 exchanges. They offer custom solutions for market making, OTC, options desks, treasury services, and liquidity pool management.

DWF Labs works with a portfolio of over 700 projects, including more than 20% of the top 100 and 35% of the top 1000 projects on CoinMarketCap. They provide liquidity on 60+ leading exchanges, trading on spot and derivatives markets.

All these players utilize advanced algorithms and deep data analytics to optimize liquidity, support new token listings, and foster healthy markets.

How Market Makers Enhance Exchange Efficiency

The presence of market makers transforms trading environments on centralized and decentralized platforms:

Increasing volume and depth. Continuous placement of two-sided orders ensures the order book is always filled. This allows large players to execute sizable trades without significantly impacting the price. For example, buying 10 BTC occurs smoothly instead of causing a sharp price jump.

Stabilizing volatility. In the 24/7 crypto market, market makers provide continuous liquidity support. During panic drops, they sustain demand at lower price levels. During euphoric rallies, they offer significant volumes for sale, preventing excessive price inflation.

Narrowing spreads. Competition among market makers on a single exchange leads to narrower spreads. A tight spread reduces traders’ transaction costs and makes trading more attractive.

Attracting traders and increasing commissions. Liquid markets attract both retail and institutional traders. More trades mean higher commission revenue for the exchange. Many platforms specifically cooperate with market makers to support new token listings, providing initial liquidity.

Price discovery. Market makers facilitate the price discovery process — where the market finds the equilibrium price of an asset based on real supply and demand rather than speculation.

Risks Faced by Market Makers

Market maker activities are fraught with financial, technical, and regulatory dangers:

Market volatility. Cryptocurrency prices can move 10-20% within hours. If a market maker holds a large position and the market moves sharply against them, losses can be catastrophic. Especially dangerous are situations where price movements outpace the algorithm’s speed — orders cannot be repositioned in time, resulting in losses.

Inventory risk. Market makers accumulate large volumes of cryptocurrencies. If the value of these assets falls, losses can be significant. This is especially risky on low-liquidity altcoin markets, where price swings are more dramatic.

Technological failures. High-frequency trading systems are vulnerable to coding errors, cyberattacks, and latency issues. A technical failure can lead to incorrect order execution at unfavorable prices, which is very costly in fast-moving conditions.

Regulatory uncertainty. Cryptocurrency legislation is constantly evolving. In some jurisdictions, market making could be reclassified as market manipulation, leading to legal consequences. Compliance costs increase for firms operating across multiple countries.

Systemic risk. If a major market maker suddenly withdraws (for example, due to a collapse), liquidity on the exchange drops sharply, prices become volatile, and small traders may panic sell.

Final Perspective

Market makers are the architects of liquidity in the crypto ecosystem. Their constant presence, enabled by complex algorithms and deep capital reserves, transforms the cryptocurrency market from a sparse, volatile environment into a relatively predictable and accessible trading platform.

While their role is invaluable, market makers are not magicians. They deal with real risks: price fluctuations, technical failures, and unstable regulatory landscapes. As the digital asset industry matures and regulatory frameworks improve, the role of market makers will only strengthen. They will remain a critical link in the chain, ensuring accessibility and efficiency in cryptocurrency trading for millions of market participants worldwide.