The Role of Market Makers in Cryptocurrency Trading: How to Improve Market Liquidity

A market maker is a specialized trading participant that forms the foundation for the efficient functioning of cryptocurrency markets. Their continuous activity in placing buy and sell orders ensures sufficient order book depth and allows thousands of traders to execute trades instantly without waiting for counter-orders. This simple but critically important action determines how smoothly cryptocurrency exchanges operate in a 24/7 trading environment.

Cryptocurrency markets differ from traditional financial markets with their nonstop activity and high volatility. In this environment, the role of the market maker becomes invaluable. Without them, traders would face insurmountable obstacles: huge spreads between buy and sell prices, sharp price jumps with low trading volumes, and practically impossible quick entry and exit from positions. Thanks to market makers, crypto trading has become accessible not only to professionals but also to retail investors worldwide.

Who Provides Liquidity in the Cryptocurrency Market

A market maker in the crypto ecosystem is a professional trader, financial institution, or specialized trading firm that profits from narrowing the spread between the bid and ask prices. This two-sided trading activity may seem simple, but in reality, it requires massive computational power, strategic thinking, and risk management at a professional level.

The key difference between a market maker and an ordinary trader lies in their target setup. While retail traders aim to buy assets cheaply and sell them at higher prices, market makers earn profit precisely from the spread—the small difference between buy and sell prices. By simultaneously placing buy orders at, for example, $67,700 and sell orders at $67,850 (using current BTC levels as an example), the market maker creates opportunities for other market participants to execute trades. Each thousand executed orders brings them a relatively small but reliable income.

Large financial institutions, hedge funds, and specialized algo-trading firms dominate the market-making sphere. However, it’s important to note that some experienced retail traders also actively place limit orders on exchanges, contributing to overall liquidity, albeit on a much smaller scale.

How a Market Maker Works: From Theory to Practice

Modern market makers operate as continuous liquidity providers, constantly adjusting their orders to changing market conditions. Their workflow can be broken down into several key stages.

Placing Bid and Ask Orders and Forming the Spread

A market maker begins by analyzing the current market situation. They place a buy order for Bitcoin (BTC) at a relatively low price and a sell order at a slightly higher price. The difference between these prices—the spread—is their source of income. For example, if the current average BTC price is $67,800, the market maker might place a buy order at $67,750 and a sell order at $67,850, creating a $100 spread. Although this may seem minor, thousands of such micro-profits accumulated daily can amount to a significant income source.

Order Execution and Order Book Reformation

When a trader accepts the market maker’s offer, the order is executed. If a buyer agrees to buy at $67,850, the market maker immediately sells their BTC and then places new buy and sell orders to remain an active participant in the order book. This process repeats thousands of times a day, creating a continuous flow of offers for other market participants.

Portfolio Management and Hedging

A market maker doesn’t just profit from the spread. They are also responsible for managing their inventory—volumes of cryptocurrencies they hold to provide liquidity. If the market maker begins accumulating too much BTC (because their sell orders are executed more often than buy orders), they expose themselves to the risk of price declines. To mitigate this risk, they employ hedging strategies—opening opposite positions on other exchanges or using futures contracts to protect their portfolio.

Algorithmic and High-Frequency Trading

Most modern market makers have fully automated their operations. They use sophisticated computer algorithms that analyze in real-time:

• Liquidity depth (how many buy and sell orders are in the book)
• Price volatility (how much the price can fluctuate)
• Incoming order flow (direction in which the price is moving)
• Activity on other crypto exchanges

Based on this data, algorithms automatically adjust the spread size and the volume of orders placed. Some firms utilize high-frequency trading (HFT) systems capable of executing thousands of trades per second, instantly reacting to the slightest market changes.

Difference Between a Market Maker and a Market Taker

In the crypto ecosystem, there are two fundamentally different types of participants, and understanding their differences is critical to grasping how markets operate.

Market Makers: Creators of Trading Opportunities

Market makers add liquidity to the market by placing limit orders—meaning they set the price at which they are willing to buy or sell but do not require immediate execution. Their orders remain in the order book, waiting for a matching order from another participant.

For example, if a market maker places a buy order for BTC at $67,800 and a sell order at $67,900, they do not expect either to be filled immediately. They simply create opportunities for other traders. If a buyer wants to purchase BTC at $67,900 and agrees to that price, they can execute instantly thanks to the market maker. Without market makers, traders would have to wait long for a seller willing to sell at the exact moment they want to buy.

Market Takers: Liquidity Consumers

Market takers act in the opposite manner. They are traders who want to execute a trade immediately, without waiting. They accept existing orders—either buying at the current ask price or selling at the current bid price.

For example, if you see an opportunity to buy BTC at the current price of $67,900 and do so immediately, you become a market taker. You remove liquidity from the market by executing an existing order from a market maker. To get this immediacy, you pay the spread—you pay slightly more than if you placed your own limit order and waited.

Ecosystem Balance: When Both Work in Harmony

A healthy market depends on a balance between these two participant types. Market makers provide continuous order availability, enabling traders to execute instant trades. Market takers generate trading activity and demand, ensuring that market maker orders are constantly executed and updated. When this system functions in equilibrium, the results are impressive:

• Narrower spreads, saving money for all participants
• Increased order book depth, allowing large orders to be filled without sharp price swings
• Reduced transaction costs for everyone—from retail investors to large institutional traders

Leading Market Makers in the Cryptocurrency Industry (2025–2026)

As the crypto market matures, a group of professional market makers has solidified, forming the architecture of liquidity in the global crypto markets.

Wintermute: A Global Leader in Algo-Trading

Wintermute is a leading algo-trading firm specializing in providing liquidity across numerous crypto exchanges. Known for its advanced trading algorithms and large-scale operations.

As of February 2025, Wintermute managed a portfolio of approximately $237 million across more than 300 assets, spread over 30+ blockchains. Its total trading volume approached $6 trillion as of November 2024. The company offers liquidity on over 50 crypto exchanges worldwide, including both centralized (CEX) and decentralized (DEX) platforms.

Advantages of cooperation: broad geographic coverage, advanced algorithmic strategies, reputation as a reliable industry partner. Potential limitations: high competition from other major players, less focus on small or niche projects, complexity in working with early-stage projects.

GSR: Over a Decade of Experience in Crypto Trading

GSR positions itself as a leading crypto trading firm with over ten years of experience. It offers a comprehensive range of services: market making, OTC trading, derivatives trading, serving clients from token issuers to institutional investors and top trading venues.

By February 2025, GSR had invested resources into over 100 leading projects and protocols within the crypto and Web3 ecosystem. It operates globally, providing liquidity on more than 60 crypto exchanges. This scale underscores GSR’s critical role in maintaining healthy digital asset markets.

Advantages: deep liquidity provision across multiple platforms, long-standing industry reputation, specialization in supporting new token launches. Limitations: focus mainly on large projects and institutional clients, high service costs for small projects.

DWF Labs: An Investor and Liquidity Provider

DWF Labs is a hybrid model—an investment firm and a market-making service provider in the Web3 ecosystem. Known for its aggressive approach to investing in promising projects and simultaneously providing liquidity.

As of February 2025, DWF Labs managed a portfolio of over 700 projects. This scale indicates support for more than 20% of projects in the top 100 on CoinMarketCap and over 35% of the top 1000. DWF Labs offers liquidity on more than 60 crypto exchanges, trading on spot and derivatives markets.

Advantages: early-stage project involvement, competitive OTC trading services, investing in promising assets. Limitations: mainly working with Tier 1 projects and exchanges, strict project evaluation procedures before cooperation.

Amber Group and Keyrock: Specialized Operators

Amber Group manages trading capital of about $1.5 billion for over 2,000 institutional clients, providing services focused on regulatory compliance and utilizing AI. Known for comprehensive risk management and a broad range of financial services.

Founded in 2017, Keyrock handles over 550,000 daily trades across 1,300+ markets and 85 exchanges. Offers not only market making but also OTC trading, options desks, treasury solutions, and liquidity pool management, serving a diverse range of digital asset industry participants.

How Market Makers Strengthen Cryptocurrency Exchanges

The impact of market makers on the health of crypto platforms is invaluable. Their activity transforms exchanges from potentially illiquid platforms into attractive trading hubs.

Increasing Liquidity and Market Depth

Market makers constantly place buy and sell orders, providing sufficient trading volume and order book depth. The practical result: when a trader wants to buy 10 BTC, there is enough liquidity for the trade to go smoothly without sharp price swings. Without market makers, attempting to buy such volume quickly would cause a significant price spike due to lack of supply.

Price Stabilization and Volatility Reduction

Crypto markets are known for extreme volatility. Market makers act as stabilizers, constantly adjusting spreads and order volumes. During sharp price drops, they support buy-side demand, preventing total price collapse. During bullish rallies, they actively offer assets for sale, preventing excessive price surges. This activity creates a kind of buffer, making price movements more gradual and predictable.

Improving Market Efficiency and Price Discovery

Market makers facilitate the process known as price discovery. Thanks to their continuous quotes and trading activity, the market instantly incorporates new information, and prices quickly find their fair level. This results in narrow spreads, faster trade execution, and traders’ ability to enter and exit positions without delays.

Attracting Traders and Increasing Exchange Revenue

Liquid markets naturally attract retail and institutional traders, leading to higher trading volumes and, consequently, increased exchange revenue from trading fees. Additionally, exchanges often work with market makers to support new token listings, providing immediate liquidity for newly launched assets. This is critical for attracting traders to new projects.

Risks and Challenges Faced by Market Makers

While market makers provide invaluable services, their activity involves significant financial, technological, and regulatory risks.

Market Volatility and Losses from Price Movements

Rapid price swings can lead to unexpected losses, especially if a market maker holds large positions. If the market moves against their position faster than they can adjust their orders, they may incur real losses instead of the expected micro-profits from spreads.

Inventory Management Risk

Market makers hold large volumes of cryptocurrencies to ensure liquidity. If the value of these assets drops sharply, they can suffer substantial losses. This is particularly risky in low-liquidity markets, where price fluctuations are more significant and unpredictable.

Technological Vulnerabilities

Market makers rely heavily on advanced algorithms and HFT systems. Technical failures, coding errors, data delays, or cyberattacks can completely disrupt their trading strategies. Even millisecond delays in order execution can lead to trades at unfavorable prices in fast-moving markets, turning expected profits into losses.

Regulatory Uncertainty

Cryptocurrency regulation varies by country and is constantly evolving. In some jurisdictions, market making could be interpreted as market manipulation, leading to serious legal consequences. Compliance costs can be astronomical for market makers operating across multiple global markets with differing rules.

Conclusion: Why Market Makers Remain Crucially Important

A market maker is not just a trader seeking quick profits. They are the architects of liquidity, creating the infrastructure upon which all crypto trading is built. Their constant presence in the market ensures traders can execute orders promptly, contributing to overall market health and maturity.

The role of market makers in providing liquidity, price stability, and market efficiency is hard to overstate. They have enabled crypto trading to move beyond a niche activity for tech enthusiasts and made it accessible to millions worldwide.

However, market makers operate under risks. Market volatility, inventory management, technological challenges, and regulatory uncertainty remain significant hurdles. As crypto trading develops and integrates more deeply with traditional finance, the role of market makers will continue to be central in shaping a more mature, stable, and accessible digital asset market.

Recognizing both the critical importance of market makers and the risks they undertake is key to understanding how modern crypto markets function and where they are headed in the future.