Market Maker in Cryptocurrency Trading: The Role of Liquidity Provider in Digital Markets

Every day, billions of dollars worth of transactions are executed on cryptocurrency exchanges. Behind the smoothness of these transactions and price stability is a key market participant — the market maker. Without market makers, cryptocurrency markets would become illiquid and volatile trading platforms, where traders would face huge gaps between bid and ask prices. Market makers are specialized traders, institutions, and trading firms that continuously supply liquidity by placing simultaneous buy and sell orders. Their constant presence in the market ensures that traders can quickly enter and exit positions, contributing to the healthy development of the crypto ecosystem.

Who is a market maker and why is their role critical

A market maker is a market participant that provides a continuous flow of buy (bid) and sell (ask) orders for a specific digital asset. At its most basic level, a market maker profits from the spread — the difference between these two prices. For example, if a market maker places a buy order for Bitcoin at $67,500 and a sell order at $67,550, they earn $50 profit on each successfully completed pair of trades.

The difference between a market maker and a regular trader is that the latter waits for a favorable moment to enter and exit. A market maker, on the other hand, acts constantly, regardless of market conditions, creating trading opportunities. This seemingly simple scheme actually requires complex infrastructure, algorithms, and risk management.

In the cryptocurrency ecosystem, market makers operate both on centralized exchanges (CEX) and decentralized platforms (DEX). Their role becomes especially important in the context of 24/7 trading, which distinguishes crypto markets from traditional financial markets with set trading hours.

How a market maker organizes the trading environment

The mechanism of a market maker is easier to understand through a concrete example. Imagine a market maker begins a trading session with Bitcoin. They place a buy order (bid) at $67,500 and simultaneously place a sell order (ask) at $67,550. The $50 spread serves as their target margin.

When another trader wants to sell Bitcoin immediately, they accept the market maker’s buy order at $67,500. The market maker buys Bitcoin. Almost immediately, when another trader wants to buy Bitcoin instantly, the market maker sells at $67,550, closing the position with a profit.

This process repeats thousands of times throughout the day. Summing micro-profits from numerous trades, market makers generate significant income. However, the risk is that if the market moves quickly against them — for example, Bitcoin’s price drops sharply — they could be stuck with large volumes of unprofitable positions.

To manage this risk, modern market makers use:

• High-frequency trading (HFT) algorithms, enabling thousands of trades per second and rapid adaptation to market changes
• Hedging across multiple exchanges, where the market maker trades simultaneously on different platforms to minimize net exposure
• Dynamic spread management, where algorithms automatically widen the spread during high volatility and narrow it during stability

Market makers and market takers: two sides of the market

Understanding the difference between market makers and market takers is key to grasping market dynamics. Market makers place limit orders in the order book and wait for other traders to accept them. Market takers, on the other hand, immediately execute market orders, accepting the available price from the market maker.

Interaction between these two participant types creates healthy market dynamics:

• Market makers provide constant trading readiness, ensuring liquidity
• Market takers generate trading activity, allowing market makers to earn from spreads
• A well-balanced system ensures narrow spreads, quick order execution, and low transaction costs for all participants

Without market takers, market makers would have no purpose — their orders would just sit in the book. Without market makers, market takers would face a lack of liquidity and inability to quickly enter positions.

Leading players: major firms shaping the market

The field of market making in cryptocurrencies today is dominated by several large firms managing significant asset volumes and operations.

Wintermute — one of the most active firms in the crypto market. As of early 2025, this company managed a portfolio of over 300 on-chain assets across more than 30 blockchains, totaling approximately $237 million. Wintermute provides liquidity on over 50 crypto exchanges with a combined trading volume of about $6 trillion annually. The company is known for its advanced algorithmic strategies and reliability.

GSR has been operating in the crypto market for over ten years. This firm offers a comprehensive range of services — from market making to OTC trading and derivatives trading. As of early 2025, GSR had invested in more than 100 leading projects and protocols in the Web3 ecosystem. The company operates on over 60 crypto exchanges, serving a diverse client base from token issuers to institutional investors.

Amber Group manages trading capital of approximately $1.5 billion for over 2,000 institutional clients. The total trading volume on the platforms they operate exceeds $1 trillion. The company is distinguished by its focus on regulatory compliance and the use of artificial intelligence in trading strategies.

Keyrock processes over 550,000 daily trades across 1,300+ markets and 85 exchanges. Founded in 2017, the company offers customized solutions including market creation, options desks, treasury solutions, and liquidity pool management.

DWF Labs supports a portfolio of over 700 projects, including more than 20% of projects in the Top-100 on CoinMarketCap and over 35% in the Top-1000. The company trades on both spot and derivatives markets through 60+ leading crypto exchanges.

How market makers transform trading platforms

The presence of market makers on an exchange radically transforms the trading environment. Their continuous activity leads to four key outcomes.

Increased liquidity and order book depth. Market makers constantly place orders at multiple price levels, creating sufficient volume to absorb large trades without sharp price swings. Attempting to buy 100 BTC without market makers would cause a significant price jump; with market makers, the same trade proceeds relatively smoothly.

Price stabilization and reduced volatility. Cryptocurrency markets are known for their volatility, especially during news events. Market makers act as buffers: during price drops, they activate buy orders to prevent free fall; during rises, they offer assets for sale to prevent excessive spikes.

Improved price efficiency. Thanks to continuous quotes from market makers, the market better reflects actual supply and demand. This results in narrower spreads between bid and ask prices, reducing trading costs for participants.

Attracting and retaining trading activity. Liquid markets attract retail and institutional traders. More traders mean more trades, generating commissions for the exchange. Many exchanges actively seek market makers to support new token listings, providing immediate liquidity.

Challenges and risks of market making

Despite its profitability, market making involves serious risks.

Volatility and inventory risk. Market makers hold large positions in cryptocurrencies to ensure liquidity. If the market moves sharply against them, they can incur significant losses. This risk is especially acute for low-liquidity altcoins, where prices can jump suddenly.

Technological threats. The algorithms and systems underpinning market making are vulnerable to technical failures, cyberattacks, and latency issues. Even millisecond delays in order execution can lead to unfavorable fills in fast-moving markets.

Regulatory uncertainty. Cryptocurrency regulation varies across jurisdictions and is constantly evolving. In some countries, market making may be considered market manipulation, leading to legal consequences. Compliance costs are high for firms operating globally.

Competitive risks. The market for market making is becoming increasingly competitive, leading to narrower spreads and reduced profitability. New technologies and participants continually pressure margins.

The future of market making in cryptocurrencies

Market makers remain a fundamental component of the crypto ecosystem. As markets mature and regulatory frameworks develop, their role will only strengthen. Integration of market makers with decentralized exchanges (DEXs) opens new horizons for providing liquidity in a decentralized environment.

The role of market makers in creating efficient, liquid, and accessible digital asset markets is undeniable. Despite risks and challenges, they remain crucial for balancing supply and demand, ensuring fair pricing, and maintaining a healthy trading ecosystem. The future of crypto trading depends directly on the efficiency and innovation of market makers in adapting to constantly changing conditions.