What is a Market Maker and Their Essential Role in Crypto Trading

The cryptocurrency market operates 24/7 with continuous volatility, but for this to happen smoothly, there must be factors that hold the trading activities together. These are the market makers—financial institutions and specialized trading firms that constantly provide buy and sell order flows. Without them, traders would face significant difficulties such as wide bid-ask spreads, high slippage, and challenges in executing large-scale trades. This article will comprehensively answer the question “what is a market maker,” covering their operating mechanisms, the biggest names in the industry, and the risks they face.

Why Do Crypto Markets Need Market Makers?

Before understanding what a market maker is in detail, it’s important to recognize that their existence solves a fundamental problem: how to ensure there is always someone ready to buy or sell when you want to trade.

In a market without market makers, when you want to buy Bitcoin, you must wait for someone willing to sell at a price you accept. This matching process can take a long time, or if you push the price up, you might have to accept a very high selling price. That’s where market makers come in to address this issue.

Market makers serve as liquidity providers, always placing both buy (bid) and sell (ask) orders close to each other. This creates a stable trading environment where anyone can buy or sell immediately without waiting.

What Is a Market Maker? Basic Concept

Market makers are not ordinary traders. They are financial organizations, algorithmic trading firms, or specialized traders whose main goal is to provide liquidity to the market. Unlike regular traders seeking to buy low and sell high for large profits, market makers earn money from small spreads between buy and sell prices, repeating this thousands of times daily.

Their operation mechanism is simple but highly effective. For example, they might place a buy order at $100,000 and a sell order at $100,010 for Bitcoin. If someone accepts the $100,010 sell price, the market maker profits $10 from this spread. Repeating thousands of such trades, these small profits accumulate into significant revenue.

Market makers are essential for both centralized exchanges (CEX) like Gate.io and decentralized exchanges (DEX). They are the key players that keep the cryptocurrency markets running smoothly and efficiently, especially in the 24/7 environment of crypto trading.

How Do Market Makers Make Money? Operating Mechanisms

To better understand market makers, it’s important to explore how they operate in practice.

The Two-Sided Order Placement Process

Market makers always place both buy and sell orders simultaneously on the exchange’s order book. The key difference is that they don’t wait for their orders to be randomly matched; instead, they proactively create matching opportunities for other traders.

For example: a market maker places a buy order at $100,000 and a sell order at $100,010. If a trader accepts the $100,010 sell price, they buy Bitcoin from the market maker. Immediately, the market maker places a new sell order to maintain continuous presence in the market. The $10 spread is their profit margin, and by repeating this thousands of times, it becomes a steady revenue stream.

Risk Management Through Hedging

Market makers don’t just profit from spreads. They also manage the amount of cryptocurrency they hold to provide liquidity. To minimize risks from price fluctuations, they employ hedging strategies—selling some or all of their holdings on other exchanges to prevent significant losses if the market moves sharply against them.

Use of Algorithms and High-Frequency Trading

Most modern market makers utilize trading bots and high-frequency trading (HFT) algorithms. These technologies enable them to:

• Adjust orders instantly based on market conditions
• Execute thousands of trades per second
• Analyze order book depth to find optimal prices
• React swiftly to price changes to avoid losses

Thanks to this technology, market makers can maintain continuous presence across multiple exchanges and manage inventory efficiently.

Market Maker vs. Market Taker: Two Sides of the Same Coin

To better understand the role of market makers, it’s helpful to compare them with market takers—an opposing concept.

Who Are Market Makers?

Market makers are liquidity providers. They place limit orders on the order book and wait for their orders to be filled. When you buy or sell, you match with their orders. This means market makers add depth to the order book, helping the market have more buy/sell options.

Advantages of market makers: narrower spreads, smoother trading, lower transaction costs.

Who Are Market Takers?

Market takers are traders who execute immediate market orders at the current market price. They don’t wait for their orders to be filled; instead, they accept any available price. When a market taker buys at the ask price of a market maker, the order is filled instantly.

Disadvantages of market takers: they may pay higher prices or accept lower prices than desired, and often incur higher trading fees (usually a higher fee rate from the exchange).

The Perfect Balance

A well-functioning crypto market relies on a balance between market makers and market takers. Market makers provide liquidity, while market takers generate trading activity. These groups depend on each other:

• Without market takers, market makers would have no one to buy their sell orders.
• Without market makers, market takers would have no orders to match.

When this balance exists, the market becomes stable, with good depth, low spreads, and a better trading experience for everyone.

Leading Names in Crypto Market Making

As of 2025, several market-making firms have established themselves in the crypto ecosystem. These are the names that new token projects often seek for support when listing.

Wintermute: Leading Algorithmic Trading Firm

Wintermute is one of the largest market makers globally. It operates on over 50 crypto exchanges with a cumulative trading volume nearing $6 trillion (as of November 2024). By 2025, Wintermute manages approximately $237 million across more than 300 on-chain assets on over 30 blockchains.

Strengths: Wide operational scope across CEX and DEX, advanced trading strategies, high reputation.

Weaknesses: Intense competition, less focus on small tokens, may not be ideal for early-stage projects.

GSR: Comprehensive Liquidity Provider

GSR is a trading firm with over a decade of experience in crypto. It offers market making, OTC trading, and derivatives services. Supporting over 60 exchanges, GSR has invested in more than 100 leading projects and protocols within the Web3 ecosystem.

Strengths: Deep liquidity, extensive experience, focus on new tokens.

Weaknesses: Primarily targets large projects, higher costs for smaller enterprises.

Amber Group: AI-Driven Trading Solutions

Amber Group manages about $1.5 billion in trading volume for over 2,000 institutional clients. Known for AI-based solutions and strict compliance, by 2025, Amber’s cumulative trading volume exceeds $1 trillion.

Strengths: Advanced AI services, comprehensive financial offerings, strong risk management.

Weaknesses: High entry barriers, operates across many sectors, less suitable for small projects.

Keyrock: Algorithmic Trading Specialist

Founded in 2017, Keyrock executes over 550,000 trades daily across more than 1,300 markets and 85 exchanges. It offers services including market making, OTC trading, options trading, and liquidity pool management.

Strengths: Optimized algorithmic trading, customizable solutions, data-driven approach.

Weaknesses: Limited resources compared to larger firms, less well-known.

DWF Labs: Web3 Investment and Market Making

DWF Labs manages a portfolio of over 700 projects, supporting more than 20% of the top 100 projects on CoinMarketCap and over 35% of the top 1,000. They provide liquidity on over 60 top exchanges, trading both spot and derivatives.

Strengths: Market liquidity provision, competitive OTC solutions, early-stage project investments.

Weaknesses: Only partners with Tier 1 projects, strict project vetting process.

How Market Makers Benefit Exchanges

The presence of market makers offers several key advantages for crypto exchanges.

Increased Liquidity

Market makers continuously place buy and sell orders, ensuring the exchange’s order book remains deep. This allows traders to execute large trades smoothly without causing significant price swings. Without market makers, a buy order for 10 Bitcoin could push the price up sharply due to lack of sell orders, but with market makers, trades are executed at stable prices.

Reduced Volatility

Price volatility is characteristic of crypto markets, but market makers help stabilize prices by constantly adjusting bid-ask spreads. Especially in low-volume altcoins, their participation prevents extreme swings. When prices get too high, market makers increase sell orders to push prices down; when prices are too low, they add buy orders to support the price.

Improved Market Efficiency

Market makers facilitate price discovery, where asset prices are determined by actual supply and demand rather than speculation. As a result:

• Bid-ask spreads are narrower, reducing trading costs.
• Orders are filled faster, allowing traders to enter and exit positions without delays.
• The market becomes more transparent and accessible.

Attracting Traders and Increasing Revenue

High liquidity and low spreads attract both retail and institutional traders. More traders mean higher trading volumes, which generate more fee revenue for the exchange. Additionally, exchanges often collaborate with market makers to list new tokens, ensuring immediate liquidity for newly listed assets.

Challenges Faced by Market Makers

Despite their benefits, market makers also face significant risks.

Rapid Market Fluctuations

Crypto markets are highly volatile. Sudden price swings can lead to unexpected losses, especially when holding large positions. If prices move against them too quickly, market makers may not have time to adjust their orders, resulting in substantial financial losses.

Inventory Risk

Market makers hold large amounts of cryptocurrencies to provide liquidity. If the value of these holdings drops sharply, losses can be significant. This risk is especially pronounced in low-liquidity markets where price swings are more extreme and unpredictable.

Technological Risks

Market makers rely heavily on advanced algorithms and high-speed trading systems. Risks include:

• Technical failures, system crashes, or cyberattacks disrupting trading strategies and causing losses.
• Latency issues leading to orders being executed at undesired prices.
• Algorithm errors that trap them in adverse market conditions.

Legal and Regulatory Risks

Cryptocurrency regulations vary by country, and sudden legal changes can impact market-making activities. Some jurisdictions may consider certain market-making practices as market manipulation, leading to legal consequences. Additionally, compliance costs can be high for firms operating across multiple regions.

Conclusion: What Is a Market Maker and Why Are They Important?

So, what is a market maker? Simply put, they are essential liquidity providers within the crypto trading ecosystem. They are not just ordinary traders but specialized organizations dedicated solely to ensuring the market functions efficiently, with sufficient liquidity for everyone to buy and sell easily.

Their continuous presence guarantees that:

• Anyone can buy or sell cryptocurrencies instantly without waiting.
• Bid-ask spreads are minimized, reducing trading costs.
• The market remains more stable, with controlled volatility, creating a safer trading environment for both retail and institutional participants.

While market makers face significant challenges related to price volatility, technology, and regulation, their role remains irreplaceable. As the crypto trading landscape continues to grow and mature, market makers will increasingly be vital in shaping a stable, fair, and accessible digital asset market for all.