Who Are Market Makers in Crypto: Friend or Foe?
Market makers are key players in the crypto market, responsible for keeping trading fast, liquid, and stable. They place continuous buy and sell orders, preventing wide spreads and helping traders execute instantly even during volatility. But because crypto is lightly regulated, the same mechanisms that support healthy markets can also be used to influence prices, take advantage of low-liquidity situations, or trigger reactions from retail traders. Knowing what market makers do, how they earn, and where the risks lie helps investors make smarter, safer decisions without falling into common market traps.
Table of Contents:
- 🧩 What Market Makers Do and Why They Matter
- 🪙 How Market Makers Earn Money
- ⚡ Risks Market Makers Face
- 🏢 Major Market Makers in Crypto
- ⚠️ The Dark Side of Market Making
- 🛡️ Risk Protection Cheat Sheet
- ⚖️ Final Verdict
- ❓ FAQ
What Market Makers Do and Why They Matter 🧩
Market makers are firms or individuals that continuously place both buy and sell orders for a crypto asset. Their constant presence creates liquidity, stabilizes prices, and allows traders to execute orders instantly. In many cases, when you click buy or sell, it is not another retail trader taking the opposite side at that exact moment — it is a market maker filling the order so you don’t have to wait for another human participant to appear in the order book.
How Market Makers Keep Markets Running ⚙️
Market makers maintain deep, populated order books by continuously posting bids and asks around the current market price. This artificial density of orders prevents large gaps and creates a smooth trading experience. If markets relied solely on organic trader activity, the order book would frequently be thin, especially during low-volume periods. That would lead to situations where even a modest order could push the price significantly up or down.
Market makers solve this by always being ready to transact. They absorb buy pressure when traders rush in, and they supply liquidity when sellers want to exit. Because they place thousands of micro-orders per minute, spreads stay tight, execution is fast, and volatility is controlled. Without them, even major trading pairs like BTC/USDT would experience sudden jumps, inconsistent pricing, and slower execution.
In simple terms: market makers make it possible for you to execute trades instantly rather than waiting for another user to match your order.
Why Exchanges Rely on Market Makers 🤝
Centralized exchanges actively recruit and incentivize market makers because liquidity is one of the strongest indicators of a healthy trading platform. A token pair with a wide spread or thin order book looks unreliable and discourages trading. Professional MM firms help exchanges avoid this problem by keeping books full around the clock.
To maintain this liquidity, exchanges provide market makers with:
- lower trading fees
- special API access
- rebate programs
- incentives for maintaining liquidity 24/7
This creates a mutually beneficial relationship: exchanges get smoother markets and higher volume, while market makers earn predictable revenue and operational advantages.
Why They Are Essential for New Projects 🚀
Every newly listed token faces the same challenge: insufficient natural liquidity. In the early days, very few traders are watching the asset, which means the order book is thin and spreads are dangerously wide. Without external liquidity providers, early trading would be chaotic, with large candles, huge slippage, and poor investor confidence.
- provide initial depth
- reduce volatility
- help the token trade smoothly
- build investor confidence
Market makers step in to prevent this chaos. They:
- provide initial depth so early buyers and sellers can trade without extreme price impact
- narrow spreads to make the token appear stable and trustworthy
- keep volatility under control by absorbing imbalanced buy or sell pressure
- help tokens build a mature trading environment faster
The same logic applies in DeFi. On decentralized exchanges, market makers supply liquidity pools or execute algorithmic strategies across multiple chains. They ensure that the token can be traded at any time, even if natural demand is still forming.
For new projects, having a competent market maker is the difference between a smooth launch and a disastrous price chart that scares investors away.
How Market Makers Earn Money 🪙
Market makers rely on several revenue models, ranging from traditional, well-understood strategies to more aggressive techniques that take advantage of crypto’s fast, lightly regulated environment. Their overall goal is not to “win trades” in a directional sense, but to profit from market flow while staying market-neutral.
Spread Capture 💱
The core revenue engine of a market maker is the bid-ask spread. They quote a price at which they are willing to buy an asset (bid) and a slightly higher price at which they are willing to sell it (ask). Every time a trader hits one of their orders, the MM earns the difference.
Imagine a BTC market where:
- best bid = 90,000 USDT
- best ask = 90,500 USDT
If a market maker buys BTC at 90,000 and later sells it at 90,500, they capture a 500 USDT spread. At small scale, that seems insignificant, but market makers execute this process thousands of times per day, often with fractional amounts of BTC. Automated systems allow them to repeat this spread capture at high frequency, creating stable, predictable revenue.
Importantly, market makers aren’t trying to predict whether BTC will move up or down. What they want is transactional flow — the constant buying and selling from traders that lets them repeatedly capture these small margins.
Arbitrage Across Exchanges 🔄
With crypto trading happening on dozens of centralized and decentralized exchanges simultaneously, price differences naturally emerge. Market makers exploit these gaps.
If BTC trades at:
- 90,000 on Exchange A
- 90,020 on Exchange B
They instantly buy on A and sell on B. This not only earns them the difference but also synchronizes prices across the market. Market makers effectively act as the glue that prevents isolated markets from drifting apart.
Special Exchange Commissions 🏦
Market makers typically qualify for reduced fees and even rebates (negative maker fees) for adding liquidity. On some platforms, they receive payments for each executed limit order. When executing billions in monthly volume, these rebates become a large, stable component of their income. In certain market conditions, rebates can even exceed the profit from the spread — meaning a market maker can break even on trades yet still remain profitable because the exchange pays them.
Working With Token Issuers 🎯
Many token projects hire market makers to support their early trading environment. New listings often suffer from thin liquidity, which creates wide spreads and unpredictable price swings. Market makers solve these issues by:
- providing initial depth
- supporting consistent volume
- reducing volatility
- making the token appear more stable and trustworthy
This is common on both CEX and DEX markets. Projects benefit from healthier markets, and market makers earn fees for maintaining liquidity around the clock.
What Risks Market Makers Face in Volatile Markets ⚡
Despite having advanced algorithms and sophisticated risk management frameworks, market makers can still lose money — sometimes dramatically. Their biggest risk comes from being forced into unwanted positions during fast market moves.
Inventory Risk 📉
If a market maker buys BTC at 90,000 as part of their normal spread-capture strategy, they expect to offload it shortly afterward through a sell order. But imagine BTC suddenly crashes to 70,000 due to market panic or liquidation cascades. Now the MM is stuck holding long inventory at 90,000. Unless they hedge instantly and effectively (for example, on futures markets), they face a large unrealized loss. If liquidity dries up, these losses can become realized quickly. This is why market makers work hard to avoid accumulating big directional positions. They want to stay delta-neutral, meaning their exposure to price movements is minimal.
Extreme Volatility Can Break Their Models 🌪️
During highly volatile moments — such as CPI releases, exchange hacks, or liquidation spikes — traditional spread-making becomes dangerous. Prices can move faster than their systems can cancel or update quotes. This can result in:
- filling orders far away from fair value
- accumulating unwanted long or short positions
- severe slippage against their own quotes
A sudden 10–20% move in a few seconds can turn a typical spread-capture operation into a major loss event.
Why Market Makers Sometimes Pull Back During Turbulence 🛑
While volatility increases trading volume (which is usually good for market makers), extreme volatility increases risk disproportionately. Many MM firms temporarily widen spreads or reduce liquidity during chaotic conditions to avoid catastrophic inventory losses.
Behind the scenes, they invest enormous resources into:
- real-time risk analysis
- automated hedging
- predictive volatility modeling
- circuit-breaker logic
- position-sizing adjustments
A market maker’s biggest fear is accumulating a large one-sided position right before the market collapses. Avoiding this scenario is a central focus of their engineering and risk departments.
Major Market Makers in the Crypto Industry 🏢
Although the crypto market is decentralized, the biggest liquidity providers are large, highly technical, institutional firms. Here are the most notable ones:
Wintermute
One of the largest and most technologically advanced crypto market makers, operating across 50+ centralized exchanges and supporting hundreds of assets. Wintermute specializes in high-frequency liquidity provision, algorithmic trading, and early-stage token market support. The firm also runs a major OTC desk for institutional clients.
website: wintermute.com
Jump Crypto (Jump Trading)
The crypto division of the legendary HFT firm Jump Trading, known for ultra-low-latency infrastructure and leadership in Solana ecosystem liquidity. Jump Crypto has provided market making for major exchanges and has been involved in building critical blockchain infrastructure and research initiatives.
website: jumpcrypto.com
GSR
One of the oldest and most respected firms in digital asset trading. GSR specializes in OTC services, market making, structured products, and long-term token liquidity partnerships. They work closely with leading exchanges such as Binance and Bybit, making them a top choice for institutional clients and new token issuers.
website: gsr.io
Amber Group
A major APAC-based financial services provider offering market making, derivatives, lending, and structured solutions. Amber Group serves both retail and institutional clients and is known for providing deep liquidity on CEXs and robust OTC operations across Asia.
website: ambergroup.io
Cumberland (DRW)
The crypto trading arm of DRW, a global financial powerhouse. Cumberland provides deep liquidity for BTC, ETH, and major altcoins, operating one of the most active OTC desks in the industry. The firm is known for conservative risk management and highly reliable execution infrastructure.
website: cumberland.io
Virtu Financial
A US-based electronic trading giant and one of the largest publicly traded HFT firms in the world. Virtu brings decades of algorithmic market-making expertise from traditional finance into the crypto sector, offering liquidity solutions built on NASDAQ-level infrastructure.
website: virtu.com
These firms operate globally, moving billions daily and shaping liquidity conditions across markets.
The Dark Side of Market Making in Crypto ⚠️
Although market makers stabilize markets and provide essential liquidity, the absence of strict regulatory oversight in crypto creates an environment where some participants use practices that would be illegal in traditional finance. These tactics distort price discovery, mislead retail traders and create subtle risks that are often hidden behind seemingly normal price action. Understanding how these methods work allows traders to recognize manipulated markets and avoid situations designed to exploit inexperience.
Spoofing: Fake Orders to Move the Market 🪤
What It Is 🧨
Spoofing occurs when a market maker or algorithm places very large buy or sell orders without any intention of allowing them to execute. These oversized orders create an illusion of strong demand or heavy selling pressure. Retail traders respond to what looks like real liquidity, and the price begins to move. As soon as the market shifts in the desired direction, the manipulator cancels the fake orders instantly and executes real trades that benefit from the artificial move. The change in price appears natural, but it is the direct result of intentional deception.
How to Spot It 👀
Spoofing often reveals itself when massive bid or ask walls appear at round numbers or obvious support and resistance levels. These walls create psychological pressure but vanish the moment the market approaches them. Price action around these levels often looks jittery, bouncing toward or away from the phantom liquidity as traders react emotionally to what they believe is genuine interest.
How to Protect Yourself 🛡️
The most effective protection is to avoid treating the order book as a reliable indicator. Large visible walls are not always real liquidity. Decisions should be based on chart structure, broader market context and consistent technical signals rather than on temporary order book snapshots. Trading in highly liquid markets also reduces vulnerability, since no single actor can dominate the book, and using stop orders helps eliminate emotional reactions to sudden perceived pressure.
Wash Trading: Fake Volume to Attract Buyers 🌀
What It Is 🔁
Wash trading is the process of a single participant acting as both buyer and seller, rapidly trading with itself to inflate volume. A token with little organic interest may suddenly appear vibrant and active as reported volume spikes. Some smaller or offshore exchanges benefit from this illusion because high volume attracts new traders. To uninformed participants, the token looks healthy and liquid even though most of the activity is manufactured and carries no real market intention.
How to Spot It 👀
A token may show exceptionally high trading volume without any corresponding growth in community activity, news coverage or genuine market interest. Price movements can appear mechanically tight or repetitive, with identical trade sizes occurring continually. One exchange may report drastically higher volume than others, revealing that the majority of activity is artificial rather than competitive market flow.
How to Protect Yourself 🛡️
Protecting yourself involves comparing trading volume across multiple exchanges, evaluating real engagement around the token and checking whether the project itself shows signs of active development. Healthy volume is consistent across platforms and supported by real demand. Tokens with inflated or suspiciously isolated volume should be approached with caution, especially when liquidity appears deep only on a single venue.
Stop-Loss Hunting: Forcing Retail Out of Positions 🎯
What It Is ⚔️
Stop-loss hunting exploits the tendency of retail traders to cluster stop orders at obvious levels such as previous lows, round numbers or clear support zones. Market makers and large whales can temporarily push the price downward or upward to trigger these stops. Once triggered, stop-loss orders convert into market orders, causing rapid price acceleration that benefits the initiator. After the liquidation cascade, the price often snaps back to its original range, leaving retail traders wondering why they were stopped out moments before the reversal.
How to Spot It 👀
Stop-loss hunts frequently show up as candles with long wicks piercing major levels before quickly returning to the prior structure. Markets may briefly overshoot a well-known level and then recover rapidly, indicating that the move was driven more by liquidity extraction than by genuine market momentum. This type of behavior is particularly noticeable around round psychological numbers or obvious chart-based support and resistance.
How to Protect Yourself 🛡️
Avoid placing stops directly at predictable levels. Instead of using exact round numbers, place stops at less obvious points where fewer traders cluster their orders. Using slightly wider stop zones or employing mental stops during periods of high volatility can also reduce the likelihood of being swept out by artificial liquidity grabs. Understanding that not every level is as solid as it seems helps traders remain flexible and avoid obvious traps.
Front-Running and MEV: Beating You to Your Own Trade ⚡
What It Is 🏃♂️
Front-running in decentralized markets takes advantage of the transparency of the public mempool. When you submit a transaction to a DEX, it becomes visible before it is confirmed. Attackers and specialized bots monitor the mempool, detect profitable trades and then pay a higher gas fee to ensure their transaction is processed first. This pushes the price against you before your order executes. In DeFi, this phenomenon is known as Maximal Extractable Value (MEV) and forms an entire subindustry of automated exploitation.
How to Spot It 👀
Front-running becomes apparent when your transaction consistently executes at prices worse than expected or when slippage tolerance is unexpectedly triggered. Large gaps between the quoted price and the final execution price frequently indicate that bots entered ahead of you, shifted the market and left you to absorb the unfavorable result. This behavior is especially common in low-liquidity pools where even small orders can significantly change the price.
How to Protect Yourself 🛡️
Setting lower slippage limits reduces the room attackers have to manipulate execution. Splitting large trades into smaller ones helps avoid attracting MEV bots. Using private transaction relays or MEV-protected RPC endpoints allows transactions to bypass the public mempool entirely, blocking front-running attempts. Avoiding low-liquidity DEX pairs is also an effective measure, since illiquid environments offer easy and highly profitable opportunities for automated attackers.
Pump and Dump: Engineering Artificial Hype 📈
What It Is 🎭
Pump and dump is one of the oldest manipulation schemes in financial history, and in crypto it thrives because markets operate 24/7, new tokens emerge daily and regulation remains inconsistent. In this tactic, a coordinated group — often involving insiders, whales or even the market maker hired by a project — artificially inflates the price of a low-liquidity token. The initial phase relies on aggressive buying, thin-order-book exploitation and engineered hype, creating the illusion of unstoppable growth. As retail traders rush in, believing they have discovered the next breakout, the orchestrators quietly unload their positions at elevated prices. Once selling pressure begins, the inflated market collapses rapidly, leaving late entrants with steep losses.
How to Spot It 👀
Pump and dump events often begin with abrupt, unnatural price spikes that occur without any meaningful news, partnerships or community discussion. The token may have extremely low liquidity beforehand, making it easy for manipulators to push the price upward with relatively small capital. Social channels or influencer accounts sometimes participate by praising the token or hinting at upcoming catalysts. As the price surges, volatility increases dramatically, spreads widen and order book depth remains suspiciously thin. When the orchestrators start selling, the reversal is violent and fast, with massive red candles erasing hours of gains in seconds.
How to Protect Yourself 🛡️
Avoiding pump and dump schemes requires a strong focus on liquidity, fundamentals and market structure. Tokens that can be moved significantly with small amounts of capital are inherently risky, no matter how exciting the momentum appears. Before entering a rapidly rising market, evaluate whether the token has real demand, real community engagement and real trading volume across multiple exchanges. Be cautious when price moves are driven by influencers or sudden hype rather than concrete developments. A disciplined approach — entering only when technical structure and liquidity justify it — is the best defense against becoming exit liquidity in a manipulated market.
Risk Protection Cheat Sheet 🛡️
| Manipulation Type | What Happens | How to Protect Yourself |
|---|---|---|
| Spoofing 🪤 | Fake buy/sell walls create artificial pressure and mislead traders | Ignore order book walls, focus on real liquidity, avoid emotional entries, trade high-liquidity pairs |
| Wash Trading 🌀 | Fake volume inflates interest and hides true liquidity | Compare volume across exchanges, check project activity, avoid tokens with isolated or unnatural volume |
| Stop-Loss Hunting 🎯 | Price is pushed to trigger clustered retail stops before reversing | Avoid placing stops at obvious levels, use wider zones, consider mental stops during high volatility |
| Front-Running / MEV ⚡ | Bots see your DEX transaction and execute ahead of you | Lower slippage, split large trades, use MEV-protected RPCs or private relays, avoid thin liquidity pools |
| Pump and Dump 📈 | Coordinated actors push price up artificially, then exit at the top | Evaluate fundamentals and liquidity, avoid low-float tokens, be skeptical of hype and sudden spikes |
| Inventory Risk (MM-side) 📉 | Market makers get stuck in losing positions during volatility | For retail: avoid thin books, expect slippage, avoid trading during news spikes and chaotic markets |
| Low-Liquidity Markets 💧 | Small orders move price dramatically, easy for manipulation | Stick to established tokens, verify liquidity depth, avoid new or inactive pairs |
Final Verdict: Market Makers Are Both Friend and Foe ⚖️
Without liquidity providers, crypto markets would freeze. Spreads would explode, token listings would fail, and volatility would destroy user confidence. Market makers are vital for a functional ecosystem.
But in a market with limited oversight, the same infrastructure that stabilizes prices can also be used to manipulate them. The key for traders is awareness: understand how liquidity works, avoid low-volume tokens, and use proper risk management.
Market makers are not villains or heroes. They are sophisticated players optimizing for profit. Your protection is education, discipline, and trading assets where manipulation is harder.
FAQ ❓
What is a market maker in crypto? 🤔
A market maker is a firm or individual that continuously provides buy and sell orders for a crypto asset. By keeping both sides of the order book active, they ensure traders can execute instantly without waiting for another participant to match their order. This stabilizes spreads, reduces price gaps and supports healthy market activity even during volatility.
Do market makers manipulate crypto prices? 🐍
Some do, especially in low-liquidity environments. Because crypto markets operate without strict oversight, certain market makers use tactics like spoofing, wash trading, stop-loss hunting and coordinated pump-and-dump schemes. These strategies distort price discovery and exploit predictable retail behavior. Not all market makers engage in manipulation, but the risk is higher in thin markets.
How do market makers earn money? 💵
Market makers profit primarily through capturing the bid-ask spread repeatedly throughout the day. They also earn from arbitrage between exchanges, fee rebates for providing liquidity and long-term liquidity contracts with token issuers. Their strategies are designed to remain market-neutral, but sudden volatility can expose them to inventory risk if prices shift sharply before they can hedge.
Should retail traders avoid tokens influenced by market makers? 🚫
Not automatically. Market makers play an important role in improving liquidity and narrowing spreads. Problems arise when a token has very low liquidity or when one actor dominates the market, making manipulation easier. Retail traders should prioritize assets with deep, multi-exchange liquidity, strong fundamentals and transparent trading environments.
Are market makers essential for crypto exchanges? 🏦
Yes. Exchanges rely on market makers to populate their order books, narrow spreads and maintain smooth, efficient trading. Without them, many markets would feel empty, unstable and expensive to trade, especially at higher volume. Their presence is one of the main reasons crypto trading appears fast and seamless.
What is wash trading in crypto? 🌀
Wash trading is a manipulation tactic where the same participant acts as both buyer and seller, artificially inflating trading volume. This creates the illusion of strong market interest and deep liquidity when, in reality, no real buyers or sellers exist. Wash trading is especially common on smaller or offshore exchanges that want their markets to appear more active than they are. It can trick retail traders into believing a token is gaining momentum when the activity is fabricated.
What is stop-loss hunting? 🎯
Stop-loss hunting occurs when whales or market makers deliberately push the price toward predictable clusters of retail stop-loss orders. When these stops trigger, they convert into market orders, causing sharp downward or upward spikes. After the liquidity is absorbed, the price often snaps back, leaving traders confused about why they were liquidated right before a reversal. This tactic exploits the tendency of retail traders to place stops at obvious levels like round numbers or major support zones.
How can retail traders protect themselves from manipulation? 🛡️
Retail traders can reduce risk by avoiding low-liquidity markets, setting stops at non-obvious levels, using conservative slippage on DEXs, and being skeptical of sudden volume spikes without fundamental catalysts. Focusing on high-liquidity assets and reputable exchanges minimizes exposure to manipulation.