How do market makers support the liquidity ceiling in crypto trading? An analysis of the operational logic of market makers

The 24/7 nonstop operation of the crypto market relies on a group of behind-the-scenes heroes—market makers in crypto. They are not retail traders betting on price swings, nor are they KOLs shouting signals to harvest followers, but rather institutions that continuously provide buy and sell counterparties to the market through algorithms and capital sources. Without them, what would trading look like? Wide spreads, extreme volatility, huge orders with no execution. Simply put, market makers profit from the bid-ask spread to keep the trading market healthy and functioning.

What exactly is the role of a market maker?

In exchanges, market makers are a special type of participant. They do not seek explosive profits from “buy low, sell high,” but instead profit by continuously placing both buy and sell orders—earning from tiny price differences on both sides.

Take Bitcoin (BTC) as an example, with a current market price of about $89,000. A market maker might simultaneously place a buy order at $88,990 and a sell order at $89,010, with a $20 spread as their profit margin. This may seem insignificant, but when such operations are performed hundreds of times per second and accumulate millions of trades daily, the total gains are quite substantial.

The core functions of market makers include:

• Providing liquidity: Ensuring there are always tradable orders in the trading pairs
• Stabilizing prices: Using scientific pricing and risk management to prevent extreme volatility
• Discovering true prices: Market prices are no longer determined by a few large players or manipulators but by real-time supply and demand balance

Leading market maker institutions like Wintermute, GSR, Amber Group, Keyrock, DWF Labs manage billions of dollars in trading capital, handling hundreds of thousands of trades daily.

How does market making in crypto operate? From algorithms to practical execution

Market making is not just manually placing orders. Modern market making involves complex technical systems and automated decision-making.

Real-time risk hedging

Imagine Wintermute taking on a $10 million BTC buy order on exchange A. Holding these coins alone means that a price drop would cause losses. So, the market maker immediately sells part of the position on exchanges B, C, D simultaneously, using cross-exchange arbitrage and hedging to lock in profits and avoid risks. That’s why they have setups across more than 50 global exchanges.

High-frequency trading algorithms

Large market makers use HFT systems capable of:

• Monitoring real-time quotes across multiple global exchanges
• Calculating optimal buy and sell prices
• Automatically adjusting order depth and spreads
• Executing risk management commands

According to Keyrock, they process over 550,000 trades daily, covering more than 1,300 trading pairs across 85 exchanges. Such scale operations rely entirely on automation.

Managing liquidity depth

Market makers do not choose prices arbitrarily. They analyze:

• Order book depth (current accumulation of buy and sell orders)
• Historical volatility (past price swings)
• Trading volume over time (which periods see high activity)

to dynamically adjust spreads. During high volatility periods, they widen spreads to compensate for risk; for less liquid or obscure coins, spreads are even broader.

Market Maker vs Market Taker: Two essential roles

Beginners often confuse “market maker” and “market taker.” The key difference:

Market Maker (Maker): Provides liquidity, places limit orders, earns the spread

• For example: Places a BTC buy order at $88,990 and a sell order at $89,010, waiting for execution
• Fees: Exchanges often give Maker rebates or charge lower fees

Market Taker (Taker): Consumes liquidity, executes market orders

• For example: Wants to buy BTC immediately, executes an existing sell order at $89,010
• Fees: Takers usually pay higher transaction fees

A healthy market needs a balance:

• Market makers continuously supply orders, enabling anyone to trade at any time
• Market takers execute these orders, creating profit opportunities and encouraging market makers to stay engaged

GSR has invested in over 100 crypto projects and protocols over the past decade, recognizing the importance of liquidity provision for ecosystem health.

The 2025 crypto market making ecosystem landscape

Wintermute: A global liquidity giant

As of February 2025, Wintermute manages over $237 million in assets, covering 300+ on-chain assets and 30+ public chains. Its total trading volume approaches $6 trillion (as of November 2024).

Advantages: Seamless cross-chain and cross-exchange connectivity; mature, stable algorithm systems Disadvantages: Limited focus on small-cap and very early-stage projects

GSR: Deep focus on institutional markets

With over 10 years of experience, GSR has become the preferred market maker for institutional investors. Besides market making, they offer OTC block trading, derivatives trading, delegated investment, and other value-added services. They currently partner with over 60 exchanges.

Advantages: Complete service chain; strong institutional backing Disadvantages: High entry barriers for small projects; relatively higher fees

Amber Group: AI-driven new era market maker

Managing $150 million in trading capital, serving over 2000 institutional clients. Amber Group’s特色在于引入AI和合规性检查，针对不同市场的法规环境做定制化方案。

Advantages: Data-driven intelligent pricing; emphasis on risk control and compliance Disadvantages: Strict entry requirements; may not suit early-stage projects

Keyrock: Medium-sized but highly efficient

Founded in 2017, now covers 85 exchanges and over 1,300 trading pairs. With over 550,000 trades daily, Keyrock demonstrates outstanding performance in liquidity optimization and cost control.

Advantages: Small but refined operation; customized solutions Disadvantages: Less well-known than top-tier players; smaller capital scale

DWF Labs: Hybrid model of investment and market making

Not only does it do market making, but it also actively invests in projects. Supports over 700 projects, including 20% of the CoinMarketCap Top 100 and 35% of the Top 1000. This means DWF Labs is both a market maker and an early supporter of projects.

Advantages: Deep integration with projects; capable of providing capital support Disadvantages: Only collaborates with Tier 1 projects and exchanges; strict review processes

Why are market makers crucial for exchanges?

Sufficient liquidity = better trading experience

The most direct effect is “someone to take the other side.” Without market makers, if you want to buy 10 BTC at once, it could significantly push up the price. With market makers, this order can be quickly absorbed with minimal price impact.

Reduced volatility, more confidence for newcomers

Crypto markets are inherently volatile. Market makers act as “stabilizers” by continuously adjusting orders. During bear markets, they increase buy orders to support prices; during bull markets, they add sell orders to suppress excessive rises. This smooths out price swings, making it more attractive for both retail and institutional participants.

Narrower spreads, lower trading costs

Comparison:

• Exchanges without market makers: BTC spreads can be $200–$500
• Leading exchanges with market makers: spreads are typically only $1–$5

Smaller spreads mean significantly lower trading costs, benefiting both high-frequency traders and one-time investors.

New tokens get “first takers”

When projects launch new tokens, liquidity is often the biggest concern—if no one trades, investors get stuck. Partnering with market makers ensures immediate availability of buy and sell counterparties, allowing new tokens to trade normally without extreme slippage. Many Tier 1 projects owe their success to the support of market makers.

The three major risks faced by market makers

1. Massive losses during extreme market volatility

In several market crashes in 2024, many market makers were caught off guard. If a market maker held large positions at BTC 69,000 and the price suddenly dropped to 50,000, losses could reach hundreds of millions or even billions of dollars instantly. The problem is that while automated systems are fast, they can fail in liquidity droughts.

2. Failure of risk management

Market makers need to hedge across multiple exchanges simultaneously. If an exchange suddenly goes offline, API fails, or network delays prevent timely execution of hedging orders, risks are exposed. In 2023, Wintermute suffered a hack that resulted in losses of tens of millions of dollars, serving as a cautionary tale about system security.

3. Sudden regulatory changes

Regulations and definitions for market makers are still evolving worldwide. Some jurisdictions have already classified certain market-making activities as “market manipulation.” Compliance costs are a huge pressure for global operations—each new market requires re-evaluation of local laws.

The future of market making: smarter or more centralized?

As on-chain data transparency improves and AI algorithms advance, competition among market makers will intensify. Small-scale market makers may be squeezed out, while large institutions leverage capital and technology to further monopolize liquidity.

Another trend is the rise of decentralized market making (AMM models). DEXs like Uniswap and Curve replace human market makers with code, allowing anyone to participate via liquidity mining. This will divert some traditional market maker business, but demand on centralized exchanges remains strong.

Long-term, market making in crypto will become a more professional, capital-intensive, and risk-controlled industry. Giants capable of integrating cross-chain, cross-exchange, and derivatives markets will be more competitive. Small and medium market makers will need to find niche markets—such as focusing on specific blockchain ecosystems or derivatives.

Summary: Market makers are not the market’s villains but its lifeblood

Many retail traders demonize market makers, thinking they are “cutting leeks” (exploiting traders). But the truth is, without market makers, the crypto market could not operate normally. Trading would become difficult, costs would skyrocket, and liquidity would dry up.

Market makers earn tiny spreads but are risking their capital to provide convenience for market participants. Their presence makes trading more transparent, efficient, and democratic.

For ordinary traders, understanding the logic of market makers has two benefits: first, it explains why some coins have good liquidity while others don’t; second, it helps understand market microstructure, enabling smarter order placement (e.g., using limit orders instead of market orders to reduce slippage).

As markets become more complex and participants more numerous, the role of market makers will become even more critical. They are not just making money—they are shaping the future of the entire crypto trading ecosystem.