Market Makers in Cryptocurrency Trading: The Role of Liquidity Providers in Modern Markets

Market makers are a critical infrastructure of cryptocurrency trading platforms, ensuring market stability and accessibility. Their constant presence creates an environment where traders can freely enter and exit positions without fear of extreme price swings or order execution failures.

Without the activity of market makers, cryptocurrency markets would face paralyzing illiquidity: wide gaps between bid and ask prices, volatility measured in triple digits percentages, and situations where large orders simply cannot be filled. In this article, we will explore how market makers operate, the role they play in ecosystem health, who the main players are in 2025, what benefits they bring to exchanges, and what risks accompany their activities.

Who are market makers and what is their essence?

Market makers are specialized traders, investment funds, or algorithmic firms that profit not from guessing the direction of price movement but from consistently executing a series of trades with a small edge in each. Their primary source of income is the spread—the difference between the price at which they are willing to buy an asset (bid) and the price at which they are willing to sell (ask).

Unlike regular traders who wait for the perfect moment to enter and exit, market makers operate almost automatically, constantly placing orders on both sides of the order book. This two-sided activity provides the opposite side for anyone wishing to execute a trade, making the market deeper and more liquid.

In the crypto sphere, market makers operate on both centralized exchanges (CEX) and decentralized exchanges (DEX), performing the same function: transforming an illiquid market into a machine for seamless trading. Their role is especially critical in the cryptocurrency ecosystem, which trades 24/7, unlike traditional financial markets with fixed trading hours.

How do market makers work: the liquidity creation mechanism

The process of how market makers operate can be divided into several interconnected stages:

Setting quotes and spreads

A market maker posts two related orders simultaneously. For example, with Bitcoin’s current price around $66,960 (as of February 2026), a market maker might place a buy order at $66,950 and a sell order at $66,970. This ten-dollar spread is where the market maker earns.

The size of the spread is not random: it depends on market volatility, trading volume, competitiveness, and expected price movement. In highly liquid pairs like BTC/USD, spreads are minimal, sometimes just $1-2 on major exchanges. In exotic altcoin pairs, spreads can widen to 0.5-1% of the price.

Inventory management and hedging

When a market maker sells Bitcoin at $66,970, they accumulate this asset in their portfolio. Simultaneously, they manage risk by hedging the position—for example, selling BTC on another exchange or on the futures market to insulate themselves from price drops. This means market makers do not hold open speculative positions.

Such portfolio management requires at least capital reserves and continuous risk monitoring. Large market makers like Wintermute, as of 2025, manage portfolios comprising hundreds of assets across dozens of blockchains, requiring computerized management.

Automated systems and algorithms

Modern market makers rely almost entirely on automated algorithms that adjust quotes in real time. These systems analyze:

• Current order book depth (how much liquidity is available at different price levels)
• Volatility and speed of price movements
• Incoming order flow (a market trend indicator)
• Comparative prices on other exchanges

Based on this analysis, the algorithm constantly updates quotes, narrowing spreads under favorable conditions and widening them before expected volatility. Some firms employ high-frequency trading (HFT) methods, making thousands of adjustments per second.

Market makers and market takers: two sides of the same coin

Understanding the difference between these two participant types helps paint a complete picture of the crypto market.

Market makers place limit orders and wait for the market to reach their price. They add liquidity and earn from the spread. Their strategy is based on statistical advantage rather than directional bets.

Market takers are regular traders who accept existing orders and execute them immediately at the current market price. They pay the spread to market makers and receive instant execution. If a market taker wants to buy Bitcoin right now, they agree to the best available sell price (ask) posted by the market maker.

Both are necessary. Market makers provide structure and liquidity, while market takers create demand and drive the market. These mutually reinforcing forces together create a functional and fair market. Many exchanges even have different fee structures: market makers often receive discounts or small incentives for adding liquidity (negative fees), while market takers pay standard commissions.

Leading players in the industry of market making (2025-2026)

As of 2025-2026, several companies dominate the crypto market-making space:

Wintermute: a global leader by scale

Wintermute stands out as one of the largest market makers. By early 2025, the company managed a portfolio of approximately $237 million in assets across more than 300 on-chain assets on 30+ blockchains. Wintermute provides liquidity on over 50 crypto exchanges and completed around $6 trillion in total trading volume by November 2024.

Strengths:

• Extensive geographic and technological infrastructure
• Operations on both CEX and DEX
• Advanced algorithmic systems

Limitations:

• Focus mainly on large, established assets
• Less attention to micro-projects and experimental tokens

GSR: institutional trading specialist

GSR attracts investments and provides market-making as a combined service, serving not only traders but also token issuers, miners, and exchanges. As of 2025, GSR had invested in over 100 leading crypto projects and protocols, confirming its deep integration into the ecosystem.

The company operates globally, providing liquidity on 60+ exchanges and employing a comprehensive asset management approach. GSR specializes particularly in large institutional volumes and token launches.

Keyrock: innovation through AI and data

Founded in 2017, Keyrock manages over 550,000 daily trades across more than 1,300 markets and 85 exchanges. The company offers customized solutions, including treasury services, liquidity pool management, and ecosystem development.

Its approach is based on deep data analytics and algorithmic optimization of liquidity distribution. Keyrock is especially attractive to projects seeking targeted and flexible market-making solutions.

Amber Group and DWF Labs: diversified players

Amber Group managed trading capital of about $1.5 billion for over 2,000 institutional clients by 2025, with a total trading volume exceeding $1 trillion. The company is known for its computerized risk management systems and AI options.

DWF Labs occupies a unique position, combining project investments (a portfolio of over 700 projects, supporting 20% of the Top-100 and 35% of the Top-1000 on CoinMarketCap) with market making. The firm operates on more than 60 leading exchanges, trading spot and derivatives markets.

All these companies utilize advanced algorithms, deep analytics, and cutting-edge technology to minimize trading inefficiencies and support healthy markets.

How market makers strengthen the crypto exchange ecosystem

The influence of market makers extends far beyond simply facilitating trades. Here are specific ways they transform the market environment:

Market depth and large trade capability

Market makers create a deep order book, meaning sufficient liquidity exists at each price level. This allows institutional traders to execute multi-million-dollar positions without significantly impacting the price. Without market makers, attempting to buy 10 BTC could cause a 3-5% price jump, making large trades impractical.

Price stabilization and volatility reduction

Market makers act as shock absorbers against price shocks. During panics, they actively buy at lower levels, preventing crashes. During bullish rallies, they supply liquidity on the sell side, preventing excessive spikes. This stabilizing activity is especially vital in smaller altcoin markets, where high initial volatility can deter retail investors.

Fair pricing

Market makers help the market find a fair price that reflects the real supply and demand, rather than random fluctuations or low-liquidity manipulations. This leads to more accurate reflection of an asset’s fundamental value.

Attracting and retaining traders

A liquid market with narrow spreads and reliable execution attracts new participants. Exchanges that actively work with market makers for new listings see increased trading activity, leading to higher fee revenues and a stronger market position.

Risks and challenges for market makers

Despite their vital role, market maker activities come with significant risks:

Volatility and inventory risk

Crypto markets move rapidly and unpredictably. A market maker who posts a buy order at $66,950 might face a market crash to $60,000 five minutes later. If algorithms don’t react quickly enough, the market maker could hold unprofitable positions. Managing such inventory risk requires constant vigilance and rapid hedging.

Technological and operational risks

High-frequency systems are susceptible to failures, latency delays, and coding errors. A bug in an algorithm can lead to thousands of orders executed at incorrect prices within milliseconds, causing catastrophic losses. Cyber threats are also real: unauthorized system access can lead to asset theft or position manipulation.

Regulatory uncertainty

Cryptocurrency regulation varies significantly across jurisdictions and is constantly evolving. In some regions, market making could be misinterpreted as market manipulation, especially if activity resembles pump-and-dump schemes. Compliance costs for operating globally can be enormous.

Counterparty risks

Market makers often allocate capital across multiple exchanges. If an exchange is hacked or goes bankrupt, the market maker could lose part of their capital or liquidity. Diversification helps but does not eliminate this risk entirely.

Conclusion and prospects

Market makers are the invisible backbone supporting the entire crypto trading ecosystem. Without them, markets would be fragmented, illiquid, and inaccessible to most participants. Their continuous work, driven by algorithms and backed by substantial capital, creates an environment where everyone—from retail traders to large funds—can trade freely.

Leading firms like Wintermute, GSR, Keyrock, Amber Group, and DWF Labs demonstrate the evolution of market making from simple spread arbitrage to complex activities involving investments, ecosystem development, and large-scale order management.

However, market makers are not magic. They face real risks: market volatility, technological failures, and regulatory uncertainties. Their success depends on constant adaptation and system improvements.

As cryptocurrency markets mature and attract more institutional capital, the role of market makers will become even more critical. They will serve as a bridge between early speculative trading and a more mature, regulated landscape where liquidity and reliability are not luxuries but necessities. Recognizing their role and understanding the challenges they overcome is essential for anyone seeking a deeper understanding of the microstructure of crypto markets.