Many people unknowingly rely on a market maker, impacting their performance directly. Ever wondered how transactions are carried out or why some assets are always available for buying or selling? Stay tuned to uncover the inner workings and motivations of market makers by the end of this article.
A market maker is an entity (company or individual) whose primary mission is to provide liquidity to cryptocurrency markets. In practical terms, market makers commit to being constantly present on both sides of the market, simultaneously placing buy and sell orders for a given asset.
This permanent presence ensures that traders can execute their orders at any time, without having to wait for another market participant to appear as a counterparty. This is particularly crucial in the crypto universe, where volatility can be extreme and opportunities appear and disappear within seconds.
In the crypto ecosystem, market makers fulfill several vital functions that go well beyond simply providing liquidity :
According to a Chainalysis study, crypto markets with a strong presence of market makers display 23% lower volatility on average compared to markets where they are less active. This relative stability is particularly valuable in a sector often criticized for its extreme fluctuations.
To fully grasp the concept of market making, it’s essential to understand the distinction between market maker and market taker :
| Characteristic | Market Maker | Market Taker |
|---|---|---|
| Primary role | Provides liquidity by placing passive orders | Consumes liquidity by executing existing orders |
| Order types | Limit orders (waiting in the order book) | Market orders (immediate execution) |
| Trading fees | Reduced, sometimes negative (rebates) | Higher |
| Market impact | Reduces volatility and spreads | Can increase short-term volatility |
| Strategy | Profit via spread and incentives | Profit via directional movements |
As a crypto trader, you are generally a market taker when you execute a market order. You “take” the liquidity offered by market makers. This is why you usually pay higher fees than they do on exchange platforms.
This distinction is fundamental because it explains why exchanges offer differentiated fee structures: they seek to attract market makers to improve the overall liquidity of their platform, which benefits the entire ecosystem.
The operation of cryptocurrency market makers relies on sophisticated mechanisms and precise strategies. Far from being simple passive intermediaries, these actors deploy complex techniques to maintain profitability while ensuring market fluidity.
To understand how market makers operate, we must first grasp the concept of the order book. This electronic register centralizes all buy and sell orders awaiting execution on an exchange platform. The order book is organized by price levels, with :
Market makers intervene by strategically placing orders on both sides of the book, creating a “ladder” of orders at different price levels. This technique, called laddering, allows them to capture spreads while limiting their directional risk exposure.
Contrary to popular belief, market makers are not philanthropists! Their business model primarily relies on capturing the spread, the difference between the buying and selling price of an asset.
Let’s take a concrete example with Bitcoin :
This strategy may seem simple, but it involves significant risks. If the market price drops sharply after the market maker has bought, they can end up with assets whose value has decreased. This is why professional market makers use sophisticated risk management and portfolio balancing techniques.
In addition to the spread, market makers can generate revenue via :
Modern market making is a highly technological activity, particularly in the 24/7 crypto universe. Professional market makers rely on :
These technologies represent considerable investments, which explains why professional market making is dominated by well-financed companies like Jump Trading, GSR, or Wintermute, which can spend millions on technical infrastructure.
“Modern market making is a technological arms race. The difference between the best and the rest is measured in microseconds and algorithm quality.” Michael Safai, Partner at Dexterity Capital
5 Major Advantages of Market Makers for Crypto Traders
The presence of market makers in crypto markets offers considerable advantages for traders, whether beginners or experienced. These often underestimated benefits can have a significant impact on your trading performance.
Optimal Liquidity : Why It’s Crucial for Your Trades
Liquidity is arguably the most obvious advantage provided by market makers. A liquid market presents several essential characteristics for traders :
- Instant order execution: You can enter or exit a position quickly, without waiting for another trader to take the other side of your transaction.
- Ability to trade significant volumes: In a liquid market, you can execute large orders without causing excessive slippage (difference between expected price and execution price).
- Reduced risk of manipulation: Liquid markets are more difficult for malicious actors to manipulate.
According to a study by Kaiko Research, BTC/USD trading pairs with a strong market maker presence show an order execution rate 8 times higher than less liquid pairs. For an active trader, this difference can represent thousands of dollars in seized or missed opportunities.
Spread Reduction : How It Improves Your Profitability
The spread, the gap between buying and selling prices, represents an implicit cost for every trader. The wider the spread, the more money you “lose” when entering and exiting a position.
Market makers, by placing orders close to market price, contribute to significantly reducing these spreads. This compression may seem minor, but its impact on your long-term profitability is considerable :
Spread Impact on 100 trades of $1000 Annual impact (1000 trades) 0.5% $500 $5,000 0.1% $100 $1,000 Savings $400 $4,000 This reduction in transaction costs can make the difference between profitable and loss-making trading, particularly for low-margin or high-frequency strategies.
Price Stability: A More Predictable Market for Your Strategies
Price stability is another major advantage provided by market makers. By absorbing temporary imbalances between supply and demand, they limit excessive fluctuations and help create a more predictable trading environment.
This relative stability offers several benefits for traders :
- Reduction in forced liquidations : Fewer extreme movements means less risk of seeing your positions liquidated during volatility spikes.
- Better efficiency of technical analysis : Technical indicators and patterns are generally more reliable in stable markets.
- Reduced stress : A less chaotic market allows for more rational and less emotional decision-making.
Historical data shows that the arrival of professional market makers on a trading pair generally leads to a 15% to 30% reduction in volatility in the following weeks, while maintaining transaction volume.
Despite their numerous advantages, market makers are not exempt from controversies and potentially problematic practices. Every informed trader should know these gray areas to navigate effectively in the crypto ecosystem.
Not all market makers are created equal. Some, particularly in the less regulated crypto space, may engage in price manipulation practices that harm ordinary traders :
These practices are particularly common on low-cap altcoins, where a single actor with sufficient resources can significantly influence the price. According to a study by the NYAG (New York Attorney General), up to 20% of volumes for certain tokens could be linked to manipulation activities.
⚠️ Warning : Sudden and unexplained price movements, particularly on low-cap tokens, may be a sign of manipulation by unscrupulous market makers.
Market makers often operate in an environment rich in potential conflicts of interest :
These conflicts are particularly problematic when market makers are also exchanges or hold significant stakes in them. The FTX/Alameda Research case in 2022 highlighted the extreme dangers of these arrangements, where Alameda (market maker) benefited from undue advantages on FTX (exchange).
Beyond direct manipulations, the presence of market makers can create systemic risks that traders should be aware of :
The crash of May 2022, where several algorithmic stablecoins lost their dollar peg, perfectly illustrates these risks. When market makers withdrew in the face of uncertainty, liquidity evaporated, accelerating price collapse.
The market making ecosystem in cryptocurrency has evolved considerably since Bitcoin’s early days. Today, it presents a diversity of actors with varied capabilities and strategies, from institutional giants to enterprising individuals.
Institutional market making is dominated by a few major players who control a significant share of liquidity on the main exchange platforms:
| Market Maker | Founded | Headquarters | Specialty | Partner Exchanges |
|---|---|---|---|---|
| Jump Trading | 1999 | Chicago | High-frequency trading | Binance, Coinbase, FTX |
| GSR Markets | 2013 | Hong Kong | Options and derivatives | Kraken, OKX, Bybit |
| Wintermute | 2017 | London | Altcoins and DeFi | Binance, Huobi, Kucoin |
| B2C2 | 2015 | London | OTC trading | Bitfinex, Bitstamp |
| Amber Group | 2017 | Singapore | Institutional solutions | Huobi, OKX |
These institutional actors are distinguished by :
Their presence is particularly visible on major trading pairs (BTC/USD, ETH/USD), where they ensure constant liquidity even during periods of high volatility. According to estimates from The Block Research, these five actors alone would represent more than 60% of market making activity on the main centralized platforms.
Facing these giants, can individuals still find their place in crypto market making? The answer is nuanced, but opportunities exist :
Traditional market making on large centralized platforms has become extremely competitive and requires considerable resources. However, several alternative paths are available to individuals :
“The democratization of market making tools has created a new ecosystem where motivated individuals can still find their place, particularly in segments neglected by institutions.” Carlo Las Marias, Co-founder of Hummingbot
One of the most frequent questions concerns the capital needed to get started in market making and the potential profitability of this activity.
Capital requirements vary considerably depending on the context :
As for return on investment (ROI), public data is scarce, but industry estimates suggest :
These returns, however, come with significant risks, including market risk (unfavorable price movements) and technical risk (automated system failures).
For an individual looking to explore market making, a progressive approach is recommended: start with limited capital on decentralized platforms, then evolve toward more complex strategies as experience and capital increase.
For crypto traders, choosing an exchange platform or broker is crucial, and the quality of market makers operating there should be an important selection criterion. An exchange with reliable and efficient market makers will generally offer a better trading experience.
Here is a selection of brokers and exchanges that stand out for the quality of their market making services in 2025 :
| Broker/Exchange | Strengths | BTC/USDT Spreads (estimated average) | Market Depth | Rating |
|---|---|---|---|---|
| Binance | Global reference with exceptional liquidity and solid partnerships with institutional market makers. | ~0.01% | Excellent | ⭐⭐⭐⭐⭐ |
| Bitget | Specialized in derivative products, offering attractive incentives for market makers and fast order execution. | ~0.015% | Good | ⭐⭐⭐⭐ |
| MEXC | Wide range of altcoins with competitive spreads and a large number of available trading pairs. | ~1.00% | Average | ⭐⭐⭐ |
| Weex | Growing exchange, offering a user-friendly platform with good liquidity on major pairs and reduced fees. | ~0.10% | Average to good | ⭐⭐⭐ |
| Libertex | Broker offering a simple interface, a wide range of cryptocurrency CFDs, with a commission model without spreads on its proprietary platform. | Variable depending on asset | Average | ⭐⭐⭐ |
These platforms distinguish themselves by their ability to maintain constant liquidity even during periods of high volatility, thanks to solid partnerships with reputable market makers and well-designed incentive programs.
To evaluate the quality of market making on a platform, ask yourself these crucial questions :
Don’t hesitate to test multiple platforms with small amounts before committing seriously. The quality of market making often reveals itself in the details of daily trading experience.
After analyzing in depth the role and impact of market makers in the crypto ecosystem, it’s time to share our balanced view on this complex subject.
Market makers play a fundamental and generally positive role in the development of crypto markets. Without them, liquidity would be insufficient to attract institutional investors and allow retail traders to execute their orders efficiently. Their presence has contributed to the ecosystem’s maturation and the reduction of certain historical inefficiencies.
However, as in any financial market, some actors may adopt questionable practices. The boundary between legitimate market making and market manipulation can sometimes seem blurry, particularly in an environment that is still insufficiently regulated.
Moreover, it is crucial to choose a regulated and reliable market maker, especially if you trade in volatile markets like cryptocurrencies or Forex.
To navigate cautiously in this ecosystem, stay alert to these potential warning signs :
These signals are not necessarily proof of malicious activities, but they deserve increased vigilance on your part.
Here are our recommendations to benefit from market makers’ advantages while minimizing risks :
Ultimately, market makers are essential actors in the crypto ecosystem, and their presence is generally beneficial for traders. However, as with any aspect of trading, an informed and cautious approach remains your best protection.
“Market makers are like oxygen in the crypto market : essential to its survival, but invisible until they’re missing.”
The role of market makers in the crypto ecosystem continues to evolve as the market matures. Several trends are emerging for the future :
For traders, understanding how market makers function is not just an intellectual curiosity, but a real competitive advantage. This knowledge allows you to better interpret market movements, optimize your executions, and avoid certain traps.
Whether you’re a beginner or experienced trader, keep in mind that market makers are essential actors in the crypto ecosystem. Their presence has transformed once illiquid and volatile markets into more accessible and efficient trading spaces.
With the right knowledge and a cautious approach, you can navigate effectively in this complex environment and take advantage of the liquidity they provide, while remaining vigilant about potentially problematic practices.
The future of market making in crypto promises to be fascinating, as innovative technologies and regulatory frameworks evolve to create a more mature, transparent, and accessible ecosystem for all.
Romain is the founder of InvestX. Passionate about finance, trading, and cryptocurrencies, he launched this project to share his passion. Today, Romain is actively involved in all key decisions and primarily manages InvestX’s social media platforms to stay closely connected with the community.
A good market maker maintains consistent liquidity even during volatile periods, offers narrow and stable spreads, and does not engage in manipulative practices. A bad market maker may disappear during turbulence, manipulate prices to its advantage, or create artificial liquidity that evaporates at the critical moment.
DEXs typically use automated market makers (AMMs) rather than traditional market makers. These protocols, like Uniswap or Curve, rely on mathematical formulas and user-supplied liquidity pools to determine prices and facilitate trading.
Projects generally evaluate several criteria: reputation and track record, available capital, technical expertise, knowledge of similar markets, transparency of practices, and, of course, costs. Serious projects favor established and transparent market makers, even if their services are more expensive.
Regulation varies considerably across jurisdictions. In some countries, such as the United States, crypto market makers are beginning to be subject to requirements similar to those of traditional markets. In other regions, oversight remains limited. This situation is rapidly evolving with the emergence of cryptocurrency-specific regulatory frameworks.
Certain patterns may suggest market maker activity, such as “walls” of orders at certain price levels, rapid absorptions of large orders without significant price impact, or coordinated movements just before major events. However, precise identification remains difficult without access to proprietary exchange data.
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