How market makers shape the liquidity landscape of crypto trading

In the rapidly evolving world of crypto asset trading, market makers(market maker) play a behind-the-scenes hero role. They continuously provide buy and sell quotes to ensure the trading market remains efficient and vibrant. The presence of these professional traders and institutions directly impacts ordinary investors’ trading costs, execution speed, and overall market stability.

Core Functions of Liquidity Providers

In the crypto ecosystem, market makers(market maker) are essentially professional liquidity providers. They place simultaneous buy and sell orders on the order book to ensure there are always sufficient counterparties in the market. This bidirectional operation mechanism solves the biggest pain point of traditional peer-to-peer trading—finding trading counterparts or waiting too long.

Imagine if there were no liquidity providers; buying 10 Bitcoin could take hours or even days, or require accepting extremely unfavorable prices. The continuous participation of market makers allows such large transactions to be completed within seconds, with minimal price fluctuation.

According to the latest data, Bitcoin (BTC) is currently trading at $87.27K, and its high liquidity is maintained by the competitive quotes of numerous market makers. They profit from the bid-ask spread (usually a few dollars to tens of dollars). Seemingly thin margins accumulate into substantial income through thousands of trades daily.

How Market Makers Operate: A Detailed Explanation

Quote Strategies and Risk Management

The core strategy of market makers revolves around three key aspects: first, they continuously place large buy and sell orders at different price levels, forming the so-called “order book depth.” For example, a market maker for BTC might set multiple layers of buy and sell orders between $87,270 and $87,300, ensuring they can capitalize on market movements in either direction.

Second, they respond rapidly to market changes using high-frequency trading algorithms. When a large order is executed, the system immediately replenishes new orders at the original levels to maintain liquidity continuity. This automated process can handle hundreds or thousands of trades per second.

Third, risk management is vital for survival. Market makers often arbitrage across multiple exchanges, profiting from small price differences while hedging against directional market risks. When an asset’s price experiences significant volatility, they automatically adjust their quote ranges to prevent uncontrollable losses.

The Role of Technical Infrastructure

Modern market makers rely on cutting-edge tech stacks: high-frequency trading(HFT) systems enable strategy execution at millisecond speeds, real-time data analysis helps understand order flow patterns and market microstructure, and distributed infrastructure ensures system stability even during intense market swings.

A single network delay or API timeout can force market makers to execute large trades at highly unfavorable prices, which is why top global market makers invest millions of dollars into their infrastructure.

Market Makers vs. Market Takers: Ecosystem Balance

In the crypto trading ecosystem, two core participant types interact to form the market’s driving force.

Role of Market Makers: They add liquidity to the market through limit orders. They set prices and wait for trading counterparts. These participants bear the “waiting” cost and are compensated via the bid-ask spread.

Role of Takers: They execute trades immediately via market orders. They get instant execution but pay the spread to market makers. These could be retail investors eager to enter positions or institutions needing quick onboarding.

The two roles are complementary: market makers provide passive liquidity (price stability), while takers provide active liquidity (trading activity). This balance ensures the market has depth and efficiency. A healthy market should have sufficient market makers and active takers.

Mainstream Market Maker Ecosystem Outlook 2025

Industry Giants’ Market Share

Wintermute—a global leader in algorithmic trading. As of February 2025, it manages over 550,000 trades daily across more than 1,300 markets and 85 exchanges. Its assets under management are approximately $237 million, covering over 30 blockchains. Its cumulative trading volume in November 2024 approached $6 trillion, illustrating its market influence—each large trade potentially supported by Wintermute’s market making.

GSR Markets—a veteran with over ten years of industry experience. By February 2025, GSR has supported over 100 major crypto projects and protocols, providing liquidity on more than 60 exchanges. Its services range from pre-token launch liquidity planning to long-term market stability and OTC block trading.

Amber Group—manages about $1.5 billion in trading capital, serving over 2,000 institutional clients. Its cumulative trading volume in February exceeded $1 trillion, reflecting its significant position in institutional trading. It features AI-driven compliance systems, especially suited for highly regulated institutional clients.

Keyrock—a mid-sized market maker focused on algorithmic optimization. Handles over 550,000 trades daily across 1,300+ trading pairs. Founded in 2017, offers a full suite of services from basic market making to liquidity pool management.

DWF Labs—an emerging investment market maker. Its unique approach combines investing and market making: managing 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 projects. This “investment + market making” dual role deepens its engagement in ecosystem development.

Practical Considerations in Choosing Market Makers

Different projects require different types of market makers. Mature large-cap assets (like BTC, ETH) can rely on spontaneous participation from numerous market makers; mid-sized projects typically need 2-3 medium-sized market makers to sign agreements; early-stage projects often must seek out willing market makers like DWF Labs, as commercial market making may refuse to participate when risks are uncontrollable.

Exchange Perspective: How Market Makers Create Value

For any trading platform, market makers are key to attracting users, increasing trading volume, and boosting revenue.

First, deep liquidity attracts large traders. An exchange with no slippage (thanks to ample market maker support) naturally becomes the first choice for institutions. This leads to higher trading volume and more intermediary fee income.

Second, market makers help new tokens launch smoothly. When a new project is listed for the first time, without initial liquidity from market makers, the first trades may face huge bid-ask spreads, severely damaging user confidence. Partnering with well-known market makers ensures new tokens have sufficient counterparties from day one.

Third, stable prices attract long-term holders. Market makers respond quickly to prevent extreme price swings, making it more attractive for retail investors to hold positions long-term rather than panic trading during volatile moves.

Finally, professional operations by market makers reduce market manipulation risks. Compared to retail traders’ disorderly trading, systematic quoting by market makers makes the market more transparent and predictable, which is crucial for the platform’s reputation.

Hidden Risks and Challenges

Market Volatility Threats

The crypto market in 2025 still faces extreme volatility risks. A sudden regulatory announcement or macro event could cause BTC to drop from $87.27K to below $80K within minutes. In such cases, pre-set algorithms of market makers may fail to react in time, forcing them to execute large losses at unfavorable prices.

Historically, cases have occurred where market makers suffered tens of millions of dollars in losses due to severe daily market swings. Some small-scale market makers even went bankrupt, unable to continue providing liquidity.

Inventory Risk Accumulation

Market makers need to hold large amounts of various crypto assets to operate. This exposes them to downside risk. When a small token suddenly crashes, their large inventories could instantly depreciate by over 50%.

This risk is especially severe in low-liquidity markets. A market maker holding 10 million units of a small coin on one exchange might find it impossible to sell these assets if liquidity suddenly dries up.

System Vulnerabilities

Although high-frequency trading systems are highly advanced, any technical system can fail. Network outages, unstable exchange APIs, or software bugs can cause market makers to execute large trades at uncontrollable prices.

Events in 2024, such as exchange outages, led some market makers to incur millions of dollars in unnecessary losses.

Regulatory Uncertainty

Global crypto regulation remains in flux. In some jurisdictions, certain market maker operations could be reclassified as “market manipulation,” facing severe penalties. Cross-border market makers must operate under different regulatory frameworks, significantly increasing compliance costs.

Regulations like the EU MiCA and new SEC rules in the US impose new requirements on market makers. Adapting to these changes requires ongoing legal consultation and system upgrades.

Evolution of the Crypto Market

Market makers are driving the ecosystem toward greater maturity and efficiency.

With more professional market makers participating in DEXs (Decentralized Exchanges), we see the rise of automated market maker(AMM) models. This innovation brings the traditional market making concept onto the blockchain, aiming to provide ample liquidity despite different operational modes.

At the same time, competition among market makers intensifies. This benefits users by lowering trading costs but compresses profit margins, meaning only those with the best technology and lowest costs can survive.

Conclusion

Market makers are the guardians of crypto market efficiency. Their presence makes trading faster, cheaper, and more stable. From BTC at $87.27K to various small-cap tokens, the liquidity of all assets is maintained to some extent by the professional operations of market makers.

However, market makers themselves face multiple challenges from market volatility, technology, and regulation. Those who can survive and thrive under these pressures are elite institutions with excellent risk management, advanced technology, and deep industry experience.

For investors, understanding the role and limitations of market makers can help make smarter trading decisions. For exchanges, collaborating with quality market makers directly impacts platform competitiveness and user experience. It is foreseeable that as the crypto market matures, the role of market makers will only become more vital and indispensable.