Liquidity Providers in Cryptocurrency Trading: How Market Makers Shape the Market?

Market makers, the backbone of the crypto trading landscape, are key players behind every transaction that many investors may not notice. These specialized firms ensure liquidity on both centralized and decentralized exchanges, enabling daily trading activities.

What Is a Market Maker? Basic Concept

A market maker is an institutional investor, algorithmic company, or trading firm that continuously provides buy and sell quotes in the crypto market to supply liquidity. Unlike retail traders aiming to buy low and sell high, market makers primarily profit from the bid-ask spread(the difference between buy and sell prices).

Imagine a scenario without market makers: a trader wanting to buy Bitcoin can only execute a trade once they find another seller’s order. During this process, prices can fluctuate wildly, transaction costs increase, and market efficiency diminishes significantly. Market makers fill this gap, allowing traders to find a counterparty instantly at their desired price.

Market Maker vs. Market Taker: Key Difference

These two concepts are entirely different:

Market Makers (Liquidity Providers): Place buy or sell orders at predetermined prices and wait in the order book. For example, they might place a buy order at $100,000 and a sell order at $100,010 for Bitcoin. These orders do not execute immediately; they patiently wait until the counterparty accepts these prices. This increases market depth, making trading cheaper and safer.

Market Takers (Immediate Traders): Execute trades instantly at the current market prices. If they want to buy Bitcoin immediately at $100,010, they accept the market maker’s offer and complete the trade. However, this does not give the market maker time to prepare their order; it results in a narrower profit margin.

A well-balanced system operates through the cooperation of both sides. Market makers place orders, market takers match these orders, and this cycle sustains liquidity.

How Do Market Makers Operate? Operational Mechanisms

Basic Operating Principles

A typical market maker follows these steps:

1. Placing Dual-Sided Orders: Places a buy order at $100,000 and a sell order at $100,010 for Bitcoin. The $10 difference represents the gross profit margin.

2. Managing Orders Rapidly: If an investor accepts the $100,010 sell price and buys Bitcoin, the market maker immediately updates the order book with new orders. This process accumulates over thousands of trades.

3. Risk Management: Market makers do not only trade; they balance their positions across multiple exchanges to minimize net inventory.

4. Using Algorithms: Modern market makers employ high-frequency trading (HFT) algorithms and bots that process thousands of transactions per second. These systems dynamically adjust quotes based on real-time market conditions.

24/7 Liquidity in Crypto Markets

Unlike traditional exchanges, crypto markets operate 24/7. Market makers provide liquidity even during low trading hours, preventing excessive price swings. They also help establish initial liquidity when new tokens are listed.

How Do Market Makers Benefit Crypto Exchanges?

1. Increased Liquidity

Market makers continuously place buy and sell orders, ensuring exchanges have sufficient trading volume and deep order books. Someone wanting to sell 10 Bitcoin will see that the entire sale can be executed without causing significant price reactions.

2. Reduced Volatility

Market makers adjust bid-ask spreads constantly to balance prices. They prevent wild fluctuations, especially in low-volume altcoin markets. They find buying opportunities in bear markets and provide selling inventory in bull markets.

3. Lower Trading Costs

Tighter spreads reduce trading costs for traders. Efficient price discovery allows asset values to be determined by actual supply-demand dynamics.

4. Increased Trading Volume and Exchange Revenue

Liquid markets attract retail and institutional traders. More trades mean higher fee revenue. Exchanges partner with market makers to support new token listings.

Leading Market Maker Firms in 2025

Several names stand out in the crypto market for liquidity and stability:

Wintermute

Wintermute manages over 300 assets worth approximately $237 million across more than 30 blockchains. It provides liquidity on over 50 exchanges worldwide, with a cumulative trading volume of over $6 trillion as of November 2024.

Strengths: Wide exchange coverage, advanced algorithmic strategies, strong industry reputation.
Weaknesses: High competition, less focus on small tokens.

GSR

With over a decade of crypto trading experience, GSR is a multi-layered investor investing in more than 100 blockchain projects and protocols. It provides liquidity on over 60 exchanges.

Strengths: Deep liquidity support, extensive industry experience, focus on token launches.
Weaknesses: Focuses more on large projects, costly for small projects.

Amber Group

Manages approximately $1.5 billion in trading capital for over 2,000 institutional clients. Its cumulative trading volume exceeds $1 trillion.

Strengths: AI-driven services, comprehensive financial packages, strong risk management focus.
Weaknesses: High entry requirements, weaker outreach to emerging projects.

Keyrock

Operating since 2017, Keyrock manages over 550,000 trades daily across more than 1,300 markets and 85 exchanges. Offers services including algorithmic trading, OTC trading, and options desk.

Strengths: Expert in liquidity optimization, customized solutions for regulatory environments, data-driven approach.
Weaknesses: Limited resources compared to larger players, less industry recognition.

DWF Labs

Manages over 700 projects and works with more than 20% of the top 100 coins on CoinMarketCap. Trades on over 60 top-tier exchanges in spot and derivatives markets.

Strengths: Provides market liquidity, competitive OTC solutions, invests in early-stage projects.
Weaknesses: Only works with tier-1 projects and exchanges, strict evaluation procedures.

Risks Faced by Market Makers

While profitable, market making involves significant challenges:

Market Volatility Risk

Rapid price movements in crypto markets can cause losses for large-position market makers. If the market moves against them too quickly, they may not adjust their orders in time.

Inventory Risk

Providing liquidity requires holding large amounts of crypto. Sharp price declines can lead to substantial losses.

Technological Risks

System failures, cyberattacks, or latency issues can disrupt trading strategies and cause financial losses.

Regulatory Risks

Crypto regulations vary by jurisdiction. Some regions may classify market making as manipulation. Operating globally incurs high compliance costs.

Conclusion: Frontline of the Crypto Market

Market makers are a critical layer ensuring the efficiency and stability of crypto trading. They support liquidity, price discovery, and market health. Despite risks, these firms will play a vital role in the maturation of the digital asset ecosystem.

As crypto trading continues to evolve, the quality and services of market makers will directly influence exchange competitiveness and accessibility. Investors benefit from understanding how these actors shape the market landscape.