The role and mechanism of market makers: the backbone of liquidity in the crypto market

In the world of cryptocurrency trading, unseen forces support the market. The true nature of these forces is market makers. Understanding how they stabilize prices and facilitate smooth trading for traders is essential to comprehending the modern crypto market.

The Important Role of Market Makers in the Crypto Market

The cryptocurrency trading environment is a dynamic ecosystem that operates 24/7, unlike traditional stock markets. In this constantly moving market, market makers play a crucial role in providing liquidity and maintaining price stability.

What would happen if market makers did not exist? Traders would face serious issues such as wide bid-ask spreads, intense volatility, and difficulty executing large orders. However, through their continuous activity, assets can be bought and sold quickly, creating a more predictable and reliable trading environment.

What Are Crypto Asset Market Makers?

Market makers in the crypto ecosystem are professional traders, institutional investors, or algorithmic trading firms that continuously provide both buy and sell orders for specific assets. This bidirectional order placement allows market participants to execute trades instantly without waiting for order matching with other traders.

While individual traders aim to “buy low and sell high,” their profit sources differ from those of market makers. Market makers generate profits from the small difference between buy and sell prices, known as the spread. Although this margin per trade may be small, it accumulates over thousands or tens of thousands of trades, providing a stable income source.

Major financial institutions, hedge funds, and specialized trading firms like Wintermute, GSR, and DWF Labs dominate this field, but individual traders can also participate on a smaller scale by using limit orders to supply liquidity.

How Market Makers Function: Actual Mechanisms

Basic Liquidity Provision Process

Market makers function as liquidity providers by continuously offering buy and sell prices at various levels. Let’s look at an example.

Suppose Bitcoin (BTC) is trading around $100,000. A market maker might simultaneously display a buy order at $100,000 and a sell order at $100,010. The $10 difference is the spread, which constitutes the market maker’s profit margin.

If a trader accepts the $100,010 sell price, BTC is sold, and the market maker immediately replenishes their position with new buy and sell orders. Repeating this process thousands of times accumulates profit from the spread.

Complex Inventory and Risk Management Strategies

Providing liquidity is not just about repeating simple trades. Market makers hedge their positions across multiple exchanges, managing inventory while minimizing exposure to price fluctuations. Firms employing high-frequency trading (HFT) algorithms execute thousands of trades per second, capable of responding instantly to market micro-movements.

Almost all modern market makers utilize algorithmic trading bots. These bots analyze real-time market data and dynamically adjust bid-ask spreads based on liquidity depth, volatility, and order flow, optimizing their pricing strategies.

Market Makers and Market Takers: Two Roles of Market Participants

The crypto market is supported by two complementary participant groups: market makers and market takers.

Market Makers: Liquidity Providers

Market makers place limit orders at specified prices. These orders do not execute immediately but are recorded on the order book, waiting for matching counterparties. For example, by simultaneously posting a buy at $100,000 and a sell at $100,010, they ensure that buyers and sellers can trade at fair prices.

Market Takers: Participants Seeking Immediate Execution

Market takers are traders who execute orders instantly at the current best available prices. Unlike makers, they do not wait for future matches but accept existing bid or ask prices to absorb liquidity. In the above example, accepting the $100,010 sell order to buy BTC immediately makes the trader a taker.

Market Efficiency Through Balance

Interactions between market makers and takers create a stable and liquid trading environment. Makers continuously provide buy and sell orders, while takers drive trading activity. This constant matching minimizes price slippage, maintains order book depth, and keeps trading costs low for all participants.

The State of Major Crypto Market Makers in 2025

Wintermute: Core of Global Trading Infrastructure

Wintermute is an advanced firm specializing in algorithmic trading, known for providing liquidity across all crypto exchanges. As of February 2025, it manages approximately $237 million in on-chain assets across more than 30 blockchains. It supplies liquidity to over 50 crypto exchanges, with a total trading volume reaching about $6 trillion as of November 2024.

Strengths: Extensive coverage across centralized and decentralized exchanges, sophisticated trading strategies, high industry reputation

Challenges: Focused mainly on large projects; limited support for small or niche tokens; may not be optimal for early-stage projects

GSR: Deep Expertise and Diversified Services

GSR is a renowned liquidity provider with over a decade of experience in crypto markets. It specializes in market making, OTC trading, and derivatives, serving a diverse client base from token issuers to institutional investors, miners, and major exchanges.

By February 2025, GSR has invested in over 100 key companies and protocols within the crypto and Web3 ecosystem. It provides liquidity on more than 60 exchanges and offers comprehensive support for digital assets.

Strengths: Deep liquidity support across many exchanges, long-standing industry track record, focus on token launches and ongoing liquidity management

Challenges: Primarily focused on large projects and institutional clients; custom solutions can be costly for smaller projects

Amber Group: AI-Driven and Compliance-Focused

Amber Group is a leading firm specializing in liquidity provision across various digital asset markets. Known for advanced trading strategies and significant market presence.

As of February 2025, it manages approximately $1.5 billion in trading capital for over 2,000 institutional investors. It supplies liquidity to numerous exchanges worldwide, with total trading volume exceeding $1 trillion.

Strengths: AI-powered, compliance-oriented services; comprehensive financial service suite; strong risk management

Challenges: High entry barriers; also active in areas beyond market making, which may exclude small or emerging projects

Keyrock: Optimizing Algorithmic Trading

Keyrock is a top-tier algorithmic trading firm specializing in liquidity provision on crypto exchanges. Known for advanced strategies and large market presence.

As of February 2025, it manages over 550,000 trades daily across more than 85 exchanges and 1,300 markets. Founded in 2017, it offers a broad range of services including market making, OTC, options desks, treasury solutions, and liquidity pool management.

Strengths: Algorithmic trading and liquidity optimization; tailored solutions for different regulatory environments; data-driven approach for optimal liquidity distribution

Challenges: Limited resources compared to larger firms; lower industry visibility; high fees for custom services

DWF Labs: Focused on Growth-Stage Projects

DWF Labs is a leading company in Web3 investment and market making. Known for advanced trading strategies and significant market presence.

By February 2025, it manages over 700 projects, supporting more than 20% of the top 100 projects on CoinMarketCap and over 35% of the top 1000, reflecting its major role in the crypto market. It provides liquidity on over 60 major crypto exchanges, in both spot and derivatives markets.

Strengths: Stable liquidity supply; competitive OTC solutions; investments in early-stage projects

Challenges: Focused mainly on Tier 1 projects and exchanges; strict project evaluation processes can be high-cost

These companies leverage advanced algorithms, deep data analysis, and cutting-edge technology to optimize liquidity, support new token launches, and foster healthy, transparent markets.

Benefits of Market Makers to Crypto Exchanges

Enhancing Liquidity and Increasing Trading Volume

By continuously providing buy and sell orders, market makers help exchanges maintain sufficient trading volume and order book depth. This facilitates smooth execution of large trades. Without market makers, attempting to buy 10 BTC could cause significant price spikes due to insufficient sell orders. Adequate liquidity absorbs large trades without major price impact.

Suppressing Volatility

Crypto markets are known for high volatility, but market makers help stabilize prices by adjusting bid-ask spreads. This prevents extreme fluctuations, especially in less liquid altcoin markets. During market crashes, makers buy to support prices, preventing further declines; during bull runs, they curb excessive surges to maintain supply.

Improving Market Efficiency

Market makers promote price discovery, ensuring asset prices are based on real supply and demand rather than speculation. Narrowing bid-ask spreads reduces trader costs and minimizes trade execution delays, enabling smooth entry and exit of positions.

Attracting Traders and Increasing Revenue

Liquid markets attract individual and institutional investors, boosting trading volume. Higher volume increases exchange fee revenue. Exchanges often partner with market makers to provide immediate liquidity for new listings.

By ensuring stable, liquid, and efficient markets, market makers help exchanges stay competitive and remain attractive to traders worldwide.

Risks Associated with Market Maker Activities in Crypto Markets

While market makers bring significant profits, their operations involve substantial risks.

Unexpected Losses Due to Market Volatility

Rapid price swings in crypto markets can lead to unexpected losses for large position holders. Sudden adverse movements may prevent timely order adjustments, resulting in negative returns.

Asset Risks from Inventory Holding

Market makers hold large amounts of crypto assets to maintain liquidity. Sharp declines in asset value can cause significant losses. This risk is amplified in low-liquidity environments with pronounced price swings.

Technical and Operational Risks

Dependence on sophisticated algorithms and HFT systems introduces risks of technical failures and cyberattacks. System errors or delays can lead to orders being executed at undesirable prices, causing financial losses.

Regulatory Uncertainty

Crypto regulations vary by jurisdiction, and sudden legal changes can impact market making activities. Some regions may view market making as market manipulation, leading to legal consequences. Compliance costs for firms operating across multiple countries tend to be high.

Summary: The Indispensable Role of Market Makers in Crypto Markets

Market makers are vital infrastructure in the crypto trading ecosystem. They provide the liquidity and stability necessary for efficient and seamless trading, enabling traders to execute orders swiftly and contributing to overall market health.

While playing a key role in liquidity, stability, and efficiency, they must also navigate market risks, regulatory changes, and technological challenges. As crypto trading evolves, market makers will continue to be central in shaping more mature and accessible digital asset markets. Recognizing both the risks they face and their importance in maintaining balanced, efficient crypto markets is crucial for all market participants.