Market Makers in Crypto Trading: How Liquidity's Hidden Heroes Shape the Market

In the world of cryptocurrency trading, what is a market maker? This is a question worth exploring in depth. Market makers, as the primary providers of liquidity, maintain the normal operation of markets by continuously placing buy and sell orders. Their existence directly impacts trading experience and market health.

Core Definition and Mechanism of Market Makers

Market makers in the crypto ecosystem are professional liquidity providers, typically large institutions, hedge funds, or specialized trading firms. Unlike retail traders who attempt to buy low and sell high, market makers mainly profit from the bid-ask spread—this small but continuously accumulated profit model constitutes their main income source.

Taking Bitcoin (BTC) as an example, the current BTC price fluctuates around $88.94K. Market makers might simultaneously place a buy order at $88,920 and a sell order at $88,980, creating a $60 spread. Although profit per trade is minimal, thousands of trades can accumulate to form a stable revenue stream.

Without market makers, the market would face severe liquidity crises. Traders would encounter wide bid-ask spreads, sharp price swings, and difficulty executing large orders. Market makers use algorithmic trading and high-frequency strategies to adjust quotes within milliseconds, thereby improving market efficiency, narrowing spreads, and reducing slippage losses.

Practical Workflow of Market Makers

Market makers employ multi-layered order placement strategies. They do not simply place orders at a single price point but simultaneously place multiple buy and sell orders across a broad price range, dynamically managing these quotes to respond to market changes.

Key execution steps include:

First, market makers use machine learning models and real-time data analysis to determine optimal bid and ask prices. The system continuously monitors market depth, trading volume, volatility, and other indicators, then automatically adjusts quotes to maximize the probability of execution while controlling risk exposure.

Second, when a trader accepts a market maker’s quote, the trade is executed immediately. The market maker then replenishes the order book with new quotes to maintain market liquidity continuity. The more frequent the trades, the faster the spread accumulates.

Third, market makers need to arbitrage and hedge risks across multiple exchanges. They might buy assets on one exchange and sell on another to lock in profits. For large positions, market makers use derivatives markets for hedging to prevent losses from rapid adverse price movements.

Relationship Between Market Makers and Price Discovery

Market makers also play a key role in asset pricing. Through their continuously updated quotes, the market gradually reaches a consensus on the true value of an asset. This “price discovery” function is crucial because it reflects the collective judgment of market participants.

In 24/7 crypto markets, market makers ensure round-the-clock liquidity availability. This eliminates liquidity gaps caused by limited trading hours in traditional stock markets, allowing traders to efficiently enter and exit positions at any time.

Market Makers and Order Takers: The Two Pillars of the Market Ecosystem

Market makers and order takers (market takers) form the foundational infrastructure of crypto trading markets. Order takers are traders who execute trades immediately at the current market price by clicking existing buy or sell orders.

Market makers provide the “liquidity pools” of buy and sell orders, enabling order takers to trade quickly. Conversely, the trading activity of order takers creates profit opportunities for market makers. This mutually beneficial relationship sustains market vitality: market makers continuously provide quotes, while order takers fill these quotes, compressing spreads and increasing market depth.

Major Market Maker Groups in 2025

Today’s crypto market is dominated by a few leading market makers, each with unique features.

Wintermute is a leader in algorithmic trading, managing over $237 million in assets as of February 2025, covering more than 300 on-chain assets and over 30 public chains. The company provides liquidity on over 50 exchanges, with a cumulative trading volume approaching $6 trillion in November 2024.

GSR has over ten years of experience in crypto markets, offering not only market making but also OTC trading and derivatives trading. The firm has invested in over 100 crypto projects and protocols, operating on more than 60 exchanges worldwide, demonstrating its multi-functional institutional role.

Amber Group manages approximately $1.5 billion in trading capital, serving over 2,000 institutional clients, with a trading volume exceeding $1 trillion in February 2025. The company is known for AI-driven compliance services and comprehensive risk management capabilities.

Keyrock handles over 550,000 trades daily across more than 1,300 markets and 85 exchanges, providing services from market making and OTC to liquidity pool management.

DWF Labs’ portfolio includes over 700 projects, supporting more than 20% of the top 100 projects on CoinMarketCap and over 35% of the top 1,000 projects. The firm operates on more than 60 major exchanges, trading in spot and derivatives markets.

Core Value Created by Market Makers for Exchanges

Market makers contribute to trading platforms in multiple ways. First, sufficient liquidity attracts retail and institutional traders, directly translating into higher trading volumes and fee revenues. Second, market stability and efficiency enhance user experience and increase platform competitiveness. Third, market makers support initial liquidity for new tokens, helping new assets quickly establish trading depth and attract early adopters.

Finally, narrowing spreads reduces trading costs, benefiting all market participants—traders pay fewer implicit costs, exchanges earn more fees from higher trading volumes, and overall market liquidity is strengthened.

Main Risks and Challenges Faced by Market Makers

Although the market maker model is stable and reliable, risks are also real. Market volatility risk is the primary threat: crypto markets are known for their sharp swings, with prices capable of dropping or rising dramatically in an instant. If market makers’ quotes cannot keep pace or they hold large positions, they may suffer significant losses.

Inventory risk arises from the large amount of crypto assets market makers must hold to provide liquidity. If these assets’ values plummet, market makers face potentially substantial floating losses. This risk is especially prominent in low-liquidity altcoin markets.

Technical risks involve system failures, algorithm flaws, or network delays. Any system interruption can cause quote update delays, leading to unfavorable trade prices in fast-changing markets. In extreme cases, technical failures could result in losses of millions of dollars.

Regulatory risks should not be overlooked. Different jurisdictions have varying attitudes toward market maker activities; some even equate certain market making strategies with market manipulation. Complying with multiple regulatory requirements is costly, and sudden regulatory changes could render existing strategies illegal overnight.

Summary: The Indispensable Role of Market Makers in Crypto Markets

Market makers are the cornerstone of the crypto trading ecosystem. Through continuous liquidity provision, price stabilization, and cost optimization, they maintain market health. For exchanges, partnering with reliable market makers is key to remaining competitive. For traders, the presence of market makers makes trading efficient and cost-effective.

As crypto markets mature, the role of market makers will become even more vital. However, they must also continuously address market risks, technological challenges, and evolving regulatory environments. Understanding how market makers operate helps traders gain deeper insight into market mechanisms and make more informed trading decisions.