Share this blog:
The worldwide cryptocurrency market is growing, valued at over $3 trillion as of 2025. Part of this growth can be attributed to market makers.
Market makers increase liquidity in the crypto market, which enhances trading efficiency while aiming to minimize price impact. Without market makers, it would be more challenging, more expensive, and ultimately, less attractive to trade.
While there's no established number of how many trades a market maker contributes daily, they are constantly active. Market makers typically use bots and algorithms to trade 24/7 in cryptocurrency exchanges, potentially executing thousands, or even millions of trades a day.
For example, the cryptocurrency market maker firm Wintermute broke its record in November 2024, reaching over $2 billion in same-day over-the-counter trading volume. Wintermute and other market maker firms might anticipate growth as more institutions look for strategies and partners to access deep liquidity.
How Does Crypto Market Making Work?
Market making is typically a high-frequency trading strategy that primarily occurs on centralized exchanges (CEXs). It involves a trader or firm that continually buys and sells cryptocurrency pairs, increasing liquidity — the ability to quickly buy or sell crypto without causing significant price swings — in the crypto market.
Generally, market makers aim to continually quote bids slightly under the market price and ask to sell assets a bit above the market price. The difference between the bid and ask prices, called the bid-ask spread, is what market makers profit from.
From an investor's perspective, they usually have a way to execute trades without having to wait for counterparties to match their orders, thanks to market makers continually filling up order books with bids and offers.
In decentralized exchanges (DEXs), market making is a little different. Automated market makers (AMMs) utilize liquidity pools in DEXs rather than order books to facilitate the trading of digital assets. Liquidity providers — which may include traditional market makers — are responsible for adding liquidity to the pool and keeping the decentralized finance (DeFi) market efficient.
Why Is Crypto Market Making Important?
Market making is indispensable to the crypto market for many reasons, including:
Increases Liquidity
Market makers ensure there's someone to buy and sell a crypto digital asset by filling order books at various price points on both sides. That means traders don't have to wait for a counterparty to come along and buy their asset, nor do they have to wait to buy an asset at a fair price.
Traders can complete transactions quickly without requiring a drastic price change. For instance, without a market maker, a trader looking to sell might have to lower their asset price to make it appeal to another trader. However, a market maker automatically buys assets from traders at competitive prices.
Reduces Price Volatility and Slippage
Slippage, or when trades are made at unexpected prices, often happens during high-volatility periods or when there aren't enough orders to execute a buy. Since market makers add liquidity and prevent traders from needing to substantially alter their orders to sell or buy assets, they also reduce price volatility and slippage to make trading less risky and more predictable.
Enhances Price Discovery and Transparency
Market makers continually adjust quotes in real time by using algorithms that take fair values, order flows, news updates, and other factors into account. Other traders discover these market-fair prices through the quotes market makers display in order books.
By posting prices in order books, market makers give traders a reliable benchmark and less need to guess what they should buy or sell for. Order books open to the public view enhance transparency and facilitate decision-making for traders.
Narrows Bid-Ask Spreads
The bid-ask spread illustrates the difference between the selling and buying price of a digital asset. A narrow spread means that assets likely reflect prices truer to the market values, while a wide bid-ask spread indicates low liquidity and greater difficulty executing trades at fair prices.
A narrow bid-ask spread isn't just beneficial for encouraging trades and winning the confidence of investors, as it also reduces trading costs. A tight bid-ask spread means that investors lose less when they need to sell an asset immediately at a lower price because the selling price won't be that much less than what they paid.
For market makers, a narrow spread translates to greater trading volume, allowing them to profit from the quantity of trades made. Market makers shape the bid-ask spread by posting two-sided quotes around the clock.
Key Considerations for Engaging With Market Makers
While many traders interact with market makers unknowingly, institutional investors, token issuers, exchanges, and other businesses strategically forge partnerships with market makers to mitigate risks and enhance profitability.
There are several successful and reliable market maker firms in the crypto realm, like GSR and Wintermute. Plenty of smaller firms exist as well. Regardless, consider the following when searching for a market-making partner:
- Reputation: Look for firms with a track record of reliability, transparency, and effective services. Most importantly, the market maker should help build deep liquidity and tight bid-ask spreads.
- Regulatory compliance: Ensure the market maker complies with relevant regulations, including anti-money laundering (AML) and know your customer (KYC) standards. They should also have a risk management framework, demonstrating how they protect client funds.
- Technological infrastructure: Does the market maker have the software and systems to provide liquidity for your desired assets and adapt to market changes efficiently? A market maker firm is essentially a technology business, so they must have the tools, systems, and data to do their job well.
Importance of Monitoring the Market
While market makers significantly enhance trading, they can also present risks. For instance, less reputable market makers might use unethical practices to inflate token prices or volumes for their own profit. Investors must still monitor the market closely to look for unusual trading patterns.
With sophisticated data and analytics tools, like those provided by Amberdata, users can efficiently gain granular insight into the market. Amberdata's solutions allow both market makers and institutions to:
- Dig deep into order books and analyze historical and real-time market data.
- Use DeFi Intelligence to monitor liquidity and assess risk across DEXs.
- Keep a pulse on overall market health with deep and broad Market Insights.
- Simplify the tracking of digital assets with Wallet Intelligence.
- Analyze transactions with comprehensive On-Chain Intelligence.
Why Trust Us?
Amberdata is a leading provider of institutional-grade digital asset data. We deliver reliable, in-depth insights into the entire digital asset ecosystem, including DEXs and CEXs, to drive decision-making, trading strategies, and risk management.
With our experience serving financial institutions, traders, market makers, and others interested in crypto, we understand the real-world challenges they face. Our solutions are designed to simplify and streamline data access and analytics, providing the end-to-end infrastructure to seamlessly integrate disjointed systems into a unified source of truth.
Navigate the Crypto Market With Amberdata
It's hard to envision crypto trading without market making. Market making is the key to efficient trading, and it supports a more stable market, attracting more participants. Equally important is access to reliable market data, as data is at the core of what market makers do. From analyzing prices to managing risks, data is the fuel that drives market-making activities.
At Amberdata, we know that data is the lifeblood of crypto trading, whether you're a market maker, asset manager, or anyone else engaged with digital assets. Our comprehensive data and analytics tools empower market makers and investors to make informed decisions and execute sophisticated trading strategies.
We have experience partnering with established market makers, like GSR, to facilitate trading and provide liquidity. Review our GSR case study to discover how they leveraged our partnership, or request a demo and see how our solutions inform crypto trading and decision-making firsthand.
