I've noticed that many people confuse two concepts in the crypto market, even though a market maker is far from just a liquidity provider. Let's clarify what the key difference is.

A liquidity provider is a general term. It includes regular users who put their funds into pools on Uniswap, large investors, venture funds, and of course, professional market makers. But what exactly is a market maker? It’s not just someone who passively earns from fees. A market maker is an active participant who constantly places and cancels orders, trades the spread, and tries to profit from price movements.

LPs usually just add liquidity to a pool and wait for fees. Market makers, on the other hand, are the active players of the market. They place large buy and sell orders simultaneously, creating the appearance of activity and maintaining a narrow spread. That’s their main tool.

On centralized exchanges, market makers almost always sign NDAs. And there’s a reason for that. They gain access to confidential information—trading volumes, large orders, liquidity flows, sometimes even priority on new listings. The exchange gives them reduced fees in exchange for supporting the market. Information about a market maker’s large position is gold. If it leaks, it can be used for manipulation.

Let me give a specific example: a new token is about to be listed. The market maker is a firm that learns in advance about the liquidity level and volume to properly set their strategy. That’s why exchanges protect this info with NDAs.

Now, how do they manipulate markets? A market maker is essentially a whale with enormous resources and advanced algorithms. Here are their main tricks:

Spoofing – placing a large buy order to create the illusion of demand, causing the price to rise, then canceling the order and selling at a higher price. Classic.

Pump and dump – coordinated efforts to inflate the price, retail traders join in, then they sell off and the price drops. Everyone except them ends up in the red.

Stop hunting – they see clusters of stop-loss orders at certain levels and intentionally push the price there to gather liquidity, then quickly reverse the market.

Wash trades – buying and selling simultaneously to create the appearance of activity, attracting other traders and taking advantageous positions before the real move.

Spread manipulation – if they want to push the price up, they narrow the spread to encourage buyers to enter more actively. To lower the price, they widen the spread to make buying more difficult and induce panic.

Who’s behind this? Jump Trading, Citadel Securities, Jane Street—huge high-frequency trading firms. Alameda Research used to be the king of crypto until it collapsed with FTX. Often, exchanges themselves, large funds, and institutional players fund market makers to support liquidity.

Why do exchanges need this? Without market makers, the market would be illiquid with huge spreads. They support prices on new trading pairs, smooth out sharp fluctuations. The paradox is that market makers are both market stabilizers and potential threats.

Here’s a typical scenario: a new token is about to be listed on an exchange. The exchange hires a market maker, who pre-gets tokens at a fixed price, then at launch places large orders, creates a narrow spread, and earns fees and spread as profit.

In conclusion: a market maker is a key player who appears to stabilize the market but can actually manipulate prices for their own benefit. They have direct ties to exchanges, sign NDAs, and work with huge capital and algorithms. Ordinary traders often fall victim because market makers have informational and technical advantages. Essentially, they are whales operating behind the scenes, controlling the market from the shadows.