Market Makers in Crypto Trading: The Business Secrets of Liquidity Guardians

One Sentence to Understand Market Maker

In cryptocurrency trading, Market Makers are institutions that continuously bridge buyers and sellers. They constantly place buy and sell orders for the same asset, earning a small spread—an apparently simple business that underpins the liquidity and stability of the entire trading market. Without them, your large orders might not execute smoothly.

What exactly is a Market Maker?

Market Makers play a crucial role in the crypto market. Simply put, they are professional traders, institutions, or algorithmic trading firms that maintain market liquidity by continuously providing two-way quotes for specific assets.

Imagine you want to buy 10 Bitcoin, but there aren’t enough sell orders on the market. Without Market Makers, your order might take a long time to fill or be forced to execute at a price far above the fair value. This is a liquidity crisis. But with Market Makers, they have already placed sell orders at various prices in the order book, ensuring trades can happen at any time.

Unlike retail traders aiming to buy low and sell high, Market Makers’ profit model is straightforward—earning the bid-ask spread. For example, buying Bitcoin (BTC) at $100,000 and selling at $100,010 earns $10 per trade. Thousands of such tiny profits accumulate into a stable income source.

How do Market Makers operate?

The process of a Market Maker’s business is not complicated, but execution requires precision:

Step 1: Simultaneous Orders — Market Makers place buy and sell orders at different prices simultaneously. For example, buy BTC at $100,000 and sell at $100,010. The $10 difference is their profit margin.

Step 2: Waiting for Counterparties — When a trader accepts either of these prices, the trade is completed. After selling BTC, the Market Maker immediately replenishes the order book with new buy and sell orders to maintain continuous market presence.

Step 3: Risk Management — Market Makers can’t focus solely on earning spreads; they must manage their position risk. They hedge positions across multiple exchanges to reduce exposure to price fluctuations. Many large Market Makers use high-frequency trading (HFT) algorithms that execute thousands of trades per second, quickly adapting to market changes.

Step 4: Algorithm-Driven — In the modern crypto Market Maker field, almost all operations are automated trading bots. These bots dynamically adjust bid-ask spreads based on real-time liquidity depth, volatility, and order flow. The more turbulent the market, the busier the algorithms.

Liquidity Providers vs. Market Takers

There are two types of participants in crypto trading markets, each playing different roles:

Market Makers (Liquidity Providers) — They place limit orders that enter the order book and wait for matches. For example, placing a buy order at $100,000 and a sell order at $100,010. This strategy ensures that the market always has reasonable price liquidity available, reducing trading costs.

Takers (Immediate Traders) — These traders execute trades immediately at the current market price. Unlike Market Makers, they remove existing liquidity from the market to complete quick trades. For example, seeing a sell order at $100,010 and buying immediately without waiting.

Balancing these two is crucial. Market Makers provide continuous liquidity, while Takers generate trading demand. Without Takers, Market Makers’ orders won’t be filled; without Market Makers, Takers face huge slippage costs.

Mainstream Market Makers in the 2025 Crypto Market

Several institutions have become leaders in the crypto Market Maker field, each with unique features:

Wintermute — A leading algorithmic trading firm managing about $300 million in on-chain assets across over 30 blockchains. As of November 2024, its total trading volume approached $6 trillion, providing liquidity on more than 50 exchanges worldwide. Its advanced trading strategies and broad coverage are advantages, but intense competition and limited focus on small tokens are challenges.

GSR — An experienced player with over ten years in crypto markets. They’ve invested in over 100 top-tier projects and protocols, providing liquidity for more than 60 exchanges globally. They excel in OTC and derivatives trading. The downside is high entry barriers, mainly serving large projects.

Amber Group — An AI-driven trading firm managing about $1.5 billion in trading capital, serving over 2,000 institutional clients. Total trading volume exceeds $1 trillion. Emphasizes risk management and compliance, but has high entry requirements and fees.

Keyrock — Founded in 2017, a professional Market Maker executing over 550,000 trades daily, covering more than 1,300 markets across 85 exchanges. Offers Market Making, OTC, options trading, and liquidity pool management. Data-driven methods ensure optimal liquidity distribution, but less well-known than industry giants.

DWF Labs — A Web3 investment and Market Making combo, managing over 700 project portfolios, supporting more than 20% of the top 100 projects and over 35% of the top 1,000 on CoinMarketCap. Provides spot and derivatives liquidity across more than 60 exchanges worldwide. Early project investments are a specialty, but they have strict project evaluation standards.

The Actual Value of Market Makers to Exchanges

Why are Market Makers so important to exchanges? The answer is straightforward:

Liquidity is fundamental — Market Makers continuously place buy and sell orders, ensuring the exchange has sufficient order depth. Without them, large orders might not execute smoothly, causing severe slippage.

Stability is guaranteed — Market fluctuations are inevitable, but Market Makers stabilize prices by dynamically adjusting spreads. In bear markets, they provide buying support; in bull markets, they balance excessive rises, preventing extreme volatility.

Efficiency is attractive — Market Makers facilitate price discovery, where asset prices are determined by real supply and demand rather than liquidity shortages. This results in narrower spreads, faster execution, and lower costs for traders.

Customer flow and revenue — Markets with good liquidity attract retail and institutional traders, increasing trading volume and exchange fee income. Exchanges partnering with Market Makers to launch new tokens ensure immediate liquidity for new assets, which is crucial for attracting traders.

Risks faced by Market Makers cannot be ignored

It may seem like a profitable business, but there are hidden risks:

Market volatility — Crypto prices change rapidly. Market Makers hold large positions, and if the market moves sharply against them, they might react too slowly, incurring instant losses. This risk is higher in low-liquidity tokens.

Inventory risk — Market Makers must hold large amounts of crypto assets to ensure liquidity. If these holdings’ value plummets, losses can be severe. This risk is especially prominent in low-volume, highly volatile markets.

Technical failures — Market Makers rely entirely on algorithms and high-frequency trading systems. Network delays, bugs, or hacking attacks can disrupt trading plans. Even milliseconds of latency can cause order prices to deviate significantly from expectations, doubling losses in fast-moving markets.

Regulatory uncertainty — Different countries have varying attitudes toward crypto Market Making, and sudden regulatory changes might classify Market Making as market manipulation. For Market Makers operating across multiple jurisdictions, compliance costs are high, and legal risks are substantial.

Summary

Market Makers are the lubricants of the crypto market; their presence makes trading more efficient, smoother, and more stable. Continuous liquidity supply, stable price discovery, and reduced trading costs are their contributions.

But don’t assume they earn easily without risks. Market volatility, technical failures, and regulatory changes can catch Market Makers off guard. Recognizing the challenges they face and understanding their role in a healthy market is essential to truly grasp how modern crypto trading operates.

As the crypto market matures, the role of Market Makers will become increasingly vital. They need to balance risk and reward, exchanges rely on their support, and markets depend on their stability. The stability of this triangle determines the health of the entire ecosystem.