# The Fate of Market Makers: Why Institutions Lose More Than Retail Investors?

In the past two weeks, I have witnessed two "black swan" events: the $19 billion liquidation wave in the crypto market on October 11, and the sudden collapse of the CS2 skin market.

The most ironic thing is that the ones who suffered the most are not the retail investors, but the "middlemen" who rely on the spread for their income. Wintermute was forced to stop trading, and the hedge fund Selini Capital suffered a loss of $18 million to $70 million in a single day. These institutions have the most advanced quantitative models and the strictest risk control systems, so why couldn't they avoid this?

The problem lies in the fact that their business model itself is fraught with landmines—requiring 5-20 times leverage to provide liquidity in order to earn the spread. This tactic is very effective under normal market conditions, but once extreme volatility occurs, leveraged positions will be liquidated, triggering a chain reaction: automatic liquidation → system crash → no opportunity to add margin → helplessly watching positions being forcibly liquidated.

The logic for CS2 skin traders is the same—they stockpiled a large amount of inventory waiting for appreciation, but Valve changed the synthesis mechanism with a patch, causing high rarity skins to drop from tens of thousands to a few thousand, resulting in an instant loss of over 50%. The key issue is that they can't even sell their stocks—liquidity evaporates directly when prices crash.

The most heartbreaking thing is: there is no safe position, only risk pricing. Those seemingly stable spread strategies are actually like "picking up coins on the train tracks" — 99% of the time it's enjoyable, but in that 1% of the time, when the train comes, you can't escape at all.

The insight for retail investors can be summed up in one sentence: reduce reliance on the assumption of being able to "exit at any time." In extreme market conditions, if you can't add margin or liquidate your assets, even the strictest models can't prevent this risk. The lower the leverage and the more abundant the liquidity, the higher the probability of survival.