Market Maker in Cryptocurrency Trading: Role, Significance, and Prospects

Imagine a situation: you want to urgently sell 5 bitcoins, but there’s no one on the exchange willing to buy them at the current price. This is a trader’s nightmare. To prevent such scenarios in the crypto ecosystem, market makers—specialists who are always ready to buy or sell assets—operate to ensure smooth trading.

A market maker is an organization or a specialized trader that systematically places simultaneous buy and sell orders for the same asset. Their activity is critical for the functioning of modern crypto markets, as without the constant presence of such participants, the market would face serious issues: extreme spreads between bid and ask prices, unpredictable price jumps, and the inability to quickly execute large orders.

Who Makes the Market: Definition and Key Functions of a Market Maker

In the cryptocurrency ecosystem, a market maker is an entity specializing in algorithmic trading and taking on the role of a continuous liquidity provider. These participants place both buy (bid) and sell (ask) orders for a specific asset, creating the necessary balance between supply and demand.

The main difference between market makers and retail traders lies in their profit sources. While an ordinary trader aims to buy low and sell high, earning profit from the price difference, a market maker profits from the spread—the difference between the buy and sell prices. For example, placing a buy order for BTC at $100,000 and a sell order at $100,010, the market maker earns on each transaction through this $10 spread, which accumulates over thousands of trades.

The role of market makers is equally important on centralized exchanges (CEX) and decentralized platforms (DEX). Major financial institutions, hedge funds, and specialized trading firms—such as Wintermute, GSR, DWF Labs, and others—dominate this space, although retail traders also contribute modestly through limit orders.

How It Works: From Algorithms to Liquidity

Market makers operate as continuous liquidity providers, utilizing complex algorithms and high-frequency trading (HFT) systems to perform their functions. Their process includes several key stages.

Initial Order Placement: The market maker analyzes current market conditions, order book depth, and volatility, then places buy and sell orders at various price levels. This creates the spread, which is their source of income.

Execution and Rebalancing: When a trader accepts the posted price (for example, buys BTC at $100,010), the market maker sells the asset and immediately places new orders to restore the position’s balance. This process repeats thousands of times daily, gradually accumulating profit.

Position Management: Market makers don’t just execute trades—they actively manage their inventory, hedging positions across multiple exchanges. This reduces their exposure to price swings and minimizes risks from sudden market movements.

Dynamic Adaptation: Modern market makers use artificial intelligence and machine learning to continuously optimize their pricing strategies. Bots analyze order flow, trends, and historical data, automatically adjusting spreads to maximize efficiency.

A special role of market makers is evident in the 24/7 trading cycles of the crypto market, unlike traditional stock exchanges with fixed schedules. Thanks to their constant presence, liquidity is available around the clock, preventing sharp price fluctuations due to low trading volumes at certain times.

Market Maker and Taker: A Duopoly

The functional interaction between market makers and takers (traders accepting current prices) forms the foundation of a liquid market. Although their roles seem opposite, they are mutually dependent.

Market makers provide a continuous flow of orders at different price levels, ensuring that buyers and sellers always find counterparties for trades. Takers, in turn, generate trading activity and demand, making the market maker’s orders relevant.

This symbiotic system offers significant advantages:

• Narrow spreads between bid and ask (often less than 0.1%)
• Fast execution of large orders without substantial price impact
• Reduced slippage when entering or exiting positions
• Overall lower operational costs for all market participants

Leading Market Players: Who Ensures Crypto Liquidity

As of now, several firms stand out for their contribution to market stability.

Wintermute remains one of the largest algo-trading firms. As of February 2025, it managed approximately $237 million across more than 300 on-chain assets distributed over 30+ blockchains. Its total trading volume approaches nearly $6 trillion (as of November 2024), with liquidity provided on over 50 crypto exchanges. The company is known for advanced algorithmic strategies and broad coverage across both CEX and DEX platforms.

GSR holds a significant position thanks to years of experience. It has invested in over 100 leading projects and protocols, providing liquidity on more than 60 exchanges, offering services from market making to OTC trading and derivatives.

Amber Group manages around $1.5 billion in trading capital, serving over 2,000 institutional clients. It supplies liquidity across numerous exchanges with a total trading volume exceeding $1 trillion.

Keyrock, founded in 2017, processes over 550,000 trades daily across more than 1,300 markets and 85 exchanges. It offers a wide range of services, including options desks, treasury solutions, and liquidity pool management.

DWF Labs manages a portfolio of over 700 projects, supporting more than 20% of the top 100 projects according to CoinMarketCap and over 35% of the top 1000 projects. It trades on spot and derivatives markets across more than 60 leading crypto exchanges.

Benefits for Trading Platforms: The Economic Value of Market Makers

The presence of market makers on an exchange provides multiple benefits for platform growth and its participants.

Increased Trading Volumes: Continuous order presence attracts both retail and institutional traders, leading to higher overall trading volume. Higher volumes translate into more trading fees for the platform.

Price Stabilization: Market makers adjust spreads based on volatility, preventing extreme price swings. During bullish rallies, they support active asset supply, avoiding excessive jumps. During downturns, they provide buying support, slowing price declines.

Attracting New Listings: Exchanges often collaborate with market makers to support new token listings, ensuring immediate liquidity for recently launched assets. This is critical for attracting traders to lesser-known crypto assets.

Enhanced User Experience: Narrow spreads and quick order execution improve trading experience, encouraging users to return and trade more.

Challenges and Risks for Market Makers

Despite their advantageous position, market makers face significant risks.

Market Volatility: Sharp price movements can lead to substantial losses, especially if large positions are held. If the market moves against them too quickly, they may not adjust their orders in time, resulting in losses.

Inventory Risk: Holding large amounts of cryptocurrencies exposes market makers to the risk of significant losses if asset prices fall sharply. This is particularly dangerous in low-liquidity markets, where price swings are more pronounced.

Technological Vulnerabilities: System failures, algorithm errors, and cyberattacks pose threats. Delays or bugs can cause orders to execute at undesired prices, and technical issues can disrupt trading strategies.

Regulatory Uncertainty: Regulations vary across countries. Sudden legal changes, classifications of market making as market manipulation, or compliance requirements can significantly increase operational costs, especially for firms operating globally.

Future Outlook: Market Maker as a Pillar of a Healthy Crypto Ecosystem

Market makers remain an integral part of the functioning of the modern crypto market. As the industry evolves, their importance only grows.

The future of crypto trading is closely tied to technological advancements used by market makers. Implementing more sophisticated algorithms, machine learning, and AI will enable even more efficient liquidity management and reduced transaction costs.

The role of market makers will become increasingly strategic as the crypto market becomes more institutionalized. As large traditional financial players enter the space, the demand for reliable, professional market makers will rise. This creates opportunities for new models of market making, including cross-chain solutions and integration with decentralized finance protocols.

However, the success of market makers in the future depends on their ability to adapt to changing regulatory landscapes, technological challenges, and increasing competition. Firms that can balance innovation, risk management, and compliance will continue to thrive in the crypto trading ecosystem.