What does a Market Maker do in the crypto industry?
- Girikrishna GP
- 2 days ago
- 3 min read
Every seamless cryptocurrency trade, where one buys or sells with minimum fluctuations in the market price, tends to have a market maker working in the background. While traders amass profits, market makers operate in the background in a manner crucial to ensuring the functionality of the crypto markets in a liquid state.
So what does a market maker actually do in the world of cryptocurrencies?
The core role of a market maker
A market maker is an entity (company, algorithmic system, or, at times, an exchange partner) that constantly submits buy and sell orders for a cryptocurrency. Essentially, their role is to ensure there is always liquidity in the market.
In simple terms, they are always ready to buy at one price and then sell at a higher one.
And ready to sell again in another.
This ensures a robust order book, where traders can easily enter or exit their positions without experiencing delays or excessive price slippage.
Importance of market makers in the cryptocurrency market
Crypto markets are much more volatile than traditional markets. Many of these coins, particularly new or mid-cap ones, have very low liquidity. Without the presence of market makers, this results in:
Sharp price jumps
Thin order books
Manipulation by large traders
Poor trading experience
This is because market makers tackle these two problems by compressing bid-ask spreads while ensuring price stability.
How market makers make money
Their main source of income is:
Bid-ask spreads: buying a little cheaper and selling a little higher
Volume incentives: exchanges may pay market makers for market-making activity
Token agreements: projects can distribute token units or fees to market makers for liquidity support
As they process large volumes and often quickly through algorithms, even a small spread can quickly add up.
Market makers vs traders: what’s the difference?
1) Market making
Traders attempt to predict market price action
Market makers do not make bets on direction; instead, they earn through activity
Market makers require:
More trades
Higher volume
Stable conditions
They earn money whether the price is rising or falling – as long as the traders continue to trade.
Market makers and crypto projects
The launch of a new token may see market makers brought in to:
Seed liquidity
Prevent extreme volatility
Assist in listing the token on exchanges
Ensure smoother price discovery
Their absence will mean that many new tokens will go through increased pump-and-dump events.
This is why credible projects typically make announcements concerning professional market-making partnerships when they launch.
Do market makers manipulate prices?
This is a common concern. Market makers exert some degree of influence on intraday price movements through their volume and order submissions. Nevertheless:
Legitimate market-makers design their operations with stabilization, not manipulation, in mind. Activities like wash trading or spoofing are also illegal. Regulated exchanges closely track market-maker activity. The distinction between providing liquidity versus manipulating the market is important—and, thankfully, regulation is better.
Market makers within CeFi and DeFi
Market makers in centralized exchanges (CeFi) are professional entities that employ high-frequency algorithms. In DeFi, liquidity may be supplied through AMMs (Automated Market Makers) such as Uniswap, where liquidity providers provide tokens to pools to earn fees in return.
Systems vary - the aim: liquidity.
Role of market makers in trading
If you've ever:
Bought crypto instantly
Sold without massive slippage
Traded a low-cap token smoothly
You have benefited from market makers.
They may not always be visible, but without them, cryptocurrency trade would be chaotic, costly, and unreliable.
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