Market Makers' Role and Value in the Cryptocurrency Market

In the cryptocurrency trading ecosystem, (market makers) play a crucial role in stabilizing markets and enhancing liquidity. These professional trading institutions continuously place buy and sell orders to ensure counterparties are always available, injecting vital vitality into the entire trading system.

Why do exchanges rely on market makers?

Cryptocurrency markets differ fundamentally from traditional stock markets—they operate 24/7 without closing. This around-the-clock nature poses significant challenges to liquidity. Without the participation of market makers, the market would face serious issues:

Consequences of liquidity depletion:

• Wide bid-ask spreads, high trading costs
• Severe price volatility, difficulty in finding reasonable transaction prices
• Large orders cannot be executed quickly, potentially impacting prices

The existence of market makers directly addresses these pain points. They use algorithms and high-frequency trading strategies to maintain two-way orders at multiple price points simultaneously, ensuring market participants can enter and exit the market quickly and at low cost. More importantly, when new tokens are listed, market makers provide initial liquidity support to attract traders, thereby activating the entire trading ecosystem.

How do market makers generate profits and maintain market balance?

The operation model of market makers may seem simple but is actually sophisticated. Taking Bitcoin (BTC) as an example, a market maker might place a buy order at $100,000 and a sell order at $100,010. The $10 spread is their profit source.

Core operational processes:

Order flow cycle — Market makers continuously update orders, absorbing spread profits. After each trade, they immediately replenish new orders to maintain market depth. This process repeats thousands or even millions of times, accumulating to form stable income.

Risk management — Market makers hold large amounts of crypto assets. To hedge risks, they balance positions across multiple exchanges, using algorithms to quickly adjust holdings and prevent losses from unidirectional volatility.

Dynamic pricing — Advanced market makers employ AI and machine learning to analyze order flow depth, market volatility, and historical trading data in real-time, dynamically adjusting spread widths. When market volatility is high, spreads widen to gain more compensation; when markets are calm, spreads narrow to attract trading volume.

Market makers vs. takers: two sides of the market

Understanding the difference between these two types of traders is crucial:

Characteristics of market makers: Market makers submit limit orders to the order book and wait for execution. Their goal is profit from the spread, not directional trading. For example, buying BTC at $100,000 and selling at $100,010—regardless of market movement, as long as this cycle completes, they earn $10. This model requires continuous market participation and numerous counterparties.

Characteristics of takers: (Market takers) are immediate traders. When they want to buy BTC instantly, they do not wait but execute at the current market price of $100,010. They “accept” the existing quotes from market makers and execute immediately.

Mutual relationship: This dynamic creates a stable market cycle. Market makers continuously provide two-way quotes, and takers activate these quotes through trading. The result is a deep order book, tight spreads, and minimal slippage(slippage), benefiting all market participants.

Leading market maker institutions in 2025

Currently, the crypto market is dominated by a few top market makers whose capital scale and market coverage determine the quality of market liquidity:

Wintermute: Benchmark in global algorithmic trading Wintermute manages approximately $237 million in assets, covering over 300 on-chain assets across more than 30 public blockchains. Its trading footprint spans over 50 exchanges, with a total trading volume of about $6 trillion(as of November 2024). Its advantage lies in seamless cross-chain and cross-exchange coverage, though it has limited focus on small new tokens.

GSR: A veteran OTC giant with a decade of experience As a seasoned institution in crypto trading, GSR’s portfolio involves over 100 top projects. Its services include market making, OTC(over-the-counter) trading, and derivatives trading, serving project teams, institutional investors, miners, and exchanges. GSR provides liquidity support on more than 60 exchanges, suitable for large projects and institutional needs, but with relatively higher service costs.

DWF Labs: A lifeline for emerging projects DWF Labs currently supports over 700 projects, including more than 20% of the top 100 projects on CoinMarketCap and over 35% of the top 1000. This institution specializes in early-stage investments and market making, active on over 60 mainstream exchanges for spot and derivatives markets. Its downside is working only with Tier 1 projects and exchanges, with high review thresholds.

Complementary roles of Amber Group and Keyrock Amber Group manages about $1.5 billion in trading capital, serving over 2000 institutional clients, emphasizing risk management and AI-driven compliance solutions. Keyrock handles approximately 550,000 orders daily, covering over 1300 trading pairs and 85 exchanges. Its data-driven approach allows precise optimization of liquidity distribution under various regulatory environments.

Core value creation of market makers for exchanges

Enhancement of liquidity quality Continuous participation of market makers ensures a well-populated order book, allowing large trades to execute smoothly without price impact. For example, buying 10 BTC in a liquid market might cause only 0.1% slippage, whereas in a less liquid market, it could cause over 5% price impact.

Ensuring price stability Crypto markets are highly susceptible to emotional swings and volatility. Market makers act as “buffers” by increasing buy orders during dips and increasing sell orders during rises, preventing extreme deviations from theoretical value. During bull markets, they curb excessive surges; during bear markets, they prevent free falls, maintaining a relatively rational pricing mechanism.

Reducing trading costs Tight bid-ask spreads directly lower costs for traders. In liquid markets, spreads may be as low as 0.01% of the base price, while in illiquid markets, spreads can exceed 1%. Market makers enable ordinary traders to transact at prices close to fair value.

Exchange revenue and competitiveness Higher trading volume results in increased fee income. The influx of institutional and retail traders attracted by market makers boosts trading activity, creating a virtuous cycle. Many exchanges actively incentivize market makers because a liquid market benefits all participants.

Real risks and challenges faced by market makers

Although the market maker model appears stable, actual operations are fraught with pitfalls:

Market volatility as a double-edged sword Rapid price movements can cause massive losses before market makers can adjust their orders. For example, if a market maker holds a buy order at $100,000 but BTC suddenly crashes to $95,000, they may be forced to transact at a much lower price, resulting in significant losses. This risk is especially high in small, low-liquidity tokens.

Complexity of position management To maintain liquidity, market makers must hold large amounts of crypto assets. The value fluctuations of these assets directly impact their net worth. In extreme conditions, hedging strategies may fail, leading to unpredictable losses.

Dependence on technology and systemic risks Market makers rely on high-frequency trading algorithms executing thousands of trades. Any technical failure, network delay, or coding error can have catastrophic consequences. During the 2020 black swan event, many market makers suffered huge losses due to system crashes.

Regulatory uncertainties Regulations and definitions of market makers vary greatly worldwide. Some jurisdictions consider certain market-making activities as market manipulation, posing legal risks. Cross-border operations require navigating complex and evolving compliance requirements, which can be costly.

Summary

Market makers are the infrastructure of modern crypto trading markets; their presence directly determines market liquidity, efficiency, and usability. From blue-chip coins like Bitcoin to emerging altcoins, market makers maintain normal market operation through algorithms, capital, and risk management.

For exchanges, attracting high-quality market makers is essential to enhance competitiveness. For project teams, partnering with reputable market makers is a safeguard for smooth trading. For ordinary traders, market makers enable quick transactions at reasonable prices without bearing the costs of illiquidity.

However, market makers also face multiple challenges such as market volatility, technical risks, and regulatory uncertainties. As the crypto market matures, the importance of this role will only grow, with their risk management capabilities and compliance standards becoming key industry benchmarks.