Market Maker Crypto: How Do Liquidity Providers Keep the Market from Collapsing?

Have you ever wondered why you can always buy or sell Bitcoin without waiting hours to find another person? This is largely thanks to Market Makers — the relentless “salespeople” of the crypto market. These liquidity providers operate 24/7, continuously placing buy and sell orders to ensure smooth and efficient transactions.

In fact, without them, the cryptocurrency market would be a chaotic place with huge spreads between buyers and sellers, crazy price volatility, and difficulty executing large trades. Therefore, understanding how Market Makers operate not only helps you better grasp the market but also reveals the deeper mechanisms behind each transaction you make.

What Is a Market Maker? An Easy-to-Understand Definition

In the world of cryptocurrency trading, a Market Maker (market maker) is not an ordinary individual but an organization such as a financial institution, an algorithmic trading firm, or a professional trader operating at a large scale. Their main job is to continuously place both buy (bid) and sell (ask) orders for crypto assets.

Unlike regular traders who just want to “buy low, sell high,” Market Makers profit from the bid-ask spread (bid-ask spread). For example, if they place a buy order for Bitcoin at $100,000 and a sell order at $100,010, the $10 difference is their profit. It may seem small, but when accumulated over thousands of trades, it becomes a steady income stream.

This role is crucial for both centralized exchanges (CEX) and decentralized exchanges (DEX). Wherever there is cryptocurrency trading, you will find the footprint of Market Makers.

How They Operate: How They Make Money

To understand how Market Makers work, imagine you run a bookstore. You don’t just sell books; you also buy books from customers. You buy at 80,000 VND and sell at 95,000 VND, making a profit of 15,000 VND per book. That’s exactly how Market Makers operate.

Basic Process

Step 1: Place Symmetrical Orders Market Maker places two opposite orders:

• Buy Bitcoin at $100,000
• Sell Bitcoin at $100,010

Step 2: Wait for Orders to Match When a trader wants to sell Bitcoin, they will match with the buy order at $100,000. When someone wants to buy, they will match with the sell order at $100,010.

Step 3: Manage Inventory After selling Bitcoin to one person and buying from another, the Market Maker will keep the balance of their position. If they hold too much Bitcoin, they can sell it on another exchange to hedge risk, or vice versa.

Behind the Technology

Most modern Market Makers do not place orders manually. Instead, they use algorithmic trading bots and high-frequency trading systems (HFT). These tools can:

• Analyze order book depth (order book depth) to determine optimal prices
• Adjust thousands of orders per second based on market conditions
• Automatically manage risk through complex algorithms

Therefore, trades can be executed without waiting for another person with a similar need.

Comparison: Market Maker vs. Market Taker

To fully understand the role of a Market Maker, you need to know the difference between them and a Market Taker (market taker).

Market Maker: Liquidity Provider

Market Makers provide liquidity by placing limit orders (limit order) — orders at a specific price. These orders sit in the exchange’s order book, waiting for someone to match them.

Example: A Market Maker places a buy order for Bitcoin at $100,000. It will stay there until someone wants to sell BTC at that price.

Market Taker: Liquidity Consumer

Market Takers are traders who execute immediate orders at the current market price. They “consume” the liquidity provided by Market Makers.

Example: A trader wants to buy Bitcoin instantly at the market price of $100,010. They will match with the Market Maker’s sell order and complete the trade instantly.

Perfect Balance

Both sides form a balanced system:

• Market Makers ensure there are always orders ready
• Market Takers generate trading activity, helping Market Makers’ orders get filled
• Result: lower spreads, deeper order books, minimal trading costs

If an exchange lacks Market Makers, it will be left open, leading to wider spreads and losses for traders.

Leading Market Making Companies in 2025

The landscape of Market Makers has changed significantly. Some companies have emerged as leaders in this field:

Wintermute

Wintermute is one of the largest algorithmic trading firms, specializing in providing liquidity across multiple exchanges. As of February 2025, the company manages about $237 million in over 300 on-chain assets across more than 30 blockchains.

With a trading volume approaching $6 trillion (as of November 2024), Wintermute operates on over 50 global cryptocurrency exchanges. Its strengths include broad coverage and advanced trading strategies, but it tends to focus less on small tokens.

GSR

GSR is a cryptocurrency trading firm with over a decade of experience. They offer market making, decentralized OTC trading (OTC), and derivatives trading.

As of February 2025, GSR has invested in over 100 companies and protocols, providing liquidity on more than 60 global exchanges. They excel in long-term liquidity management but mainly target large projects.

Amber Group

Amber Group manages approximately $1.5 billion in trading capital for over 2,000 institutional clients. Their accumulated trading volume exceeds $1 trillion (as of February 2025).

Their strengths include AI-based services and strict compliance, but high entry requirements limit smaller projects.

Keyrock

Keyrock executes over 550,000 trades daily across more than 1,300 markets and 85 exchanges. Founded in 2017, the company offers a range of services from market making to liquidity pool management.

Advantages: advanced algorithmic trading and customizable solutions. Disadvantages: more limited resources compared to major leaders.

DWF Labs

DWF Labs manages a portfolio of over 700 projects, supporting more than 20% of the top 100 projects on CoinMarketCap. They provide liquidity on over 60 top exchanges, operating in both spot (spot) and derivatives (derivatives) markets.

Strengths: deep liquidity and competitive OTC solutions. Weaknesses: only collaborates with Tier 1 projects.

Why Are Market Makers Important for Exchanges?

1. Continuous Liquidity

Market Makers place buy and sell orders constantly, ensuring the exchange always has enough volume to execute large trades without causing significant price movements.

Imagine: if you want to buy 100 Bitcoin but there’s no liquidity, the price will spike to find sellers. But with Market Makers, they are ready to sell to you.

2. Reduce Volatility

The cryptocurrency market is known for high volatility, but Market Makers help stabilize prices by continuously adjusting the bid-ask spread, preventing extreme fluctuations.

3. Improve Efficiency

Market Makers facilitate price discovery (price discovery). Instead of prices being driven by speculation, they are determined by actual supply and demand. The results:

• Lower spreads
• Faster order matching
• Reduced trading costs

4. Attract Traders & Increase Revenue

Markets with high liquidity attract both retail and institutional traders, leading to higher trading volumes. More trades = more fees for the exchange.

Exchanges often partner with Market Makers to support listing new tokens, ensure immediate liquidity, and create a positive impression.

Hidden Risks

Although Market Makers bring significant benefits, their activities also carry notable risks:

Market Volatility

Rapid price swings in crypto can lead to unexpected losses. If the market moves too quickly, Market Makers may not be able to adjust their orders in time, resulting in substantial losses.

Example: If Bitcoin drops 5% in seconds, the Market Maker could be stuck with an unfavorable position.

Inventory Risk

Market Makers hold large amounts of cryptocurrencies to provide liquidity. If prices fall sharply, losses can be substantial, especially in low-liquidity markets.

Technology Risk

Due to reliance on algorithms and HFT systems, Market Makers may face:

• Technical errors or system failures
• Cyberattacks
• Latency issues leading to orders executed at undesired prices

Regulatory Risks

Cryptocurrency regulations vary by country. Some jurisdictions may even classify market making activities as market manipulation, leading to legal consequences. Compliance costs are also high when operating across multiple global markets.

Conclusion: Market Makers Are the Backbone of the Crypto Market

Market Makers are not just those who profit from tiny bid-ask spreads. They are the ones keeping the cryptocurrency market from collapsing.

Their continuous presence ensures you can always buy or sell crypto without waiting or worrying about crazy price swings. They help stabilize the market, facilitate new tokens, and create a more efficient trading environment for everyone.

However, it’s important to remember that market making activities also come with significant risks — from price volatility and technological issues to legal challenges. As the crypto trading sector continues to evolve, the role of Market Makers will become increasingly vital in shaping a mature, transparent, and more accessible digital asset market.