In modern financial markets, activity is not simply driven by buyers and sellers. A more accurate framework distinguishes between makers and takers, a distinction that better explains how liquidity forms and how prices are discovered.
Today, the term “market maker” generally refers to professional and institutional entities. These firms are highly specialized financial operators with significant capital, advanced infrastructure, and deep expertise in managing risk across multiple venues and assets.
Because of their central role, market makers are often misunderstood. They are sometimes perceived as price manipulators who manufacture volume or steer markets in a specific direction. In reality, professional market makers do not create inefficiencies. Instead, they identify and capitalize on inefficiencies that already exist, earning returns by continuously providing liquidity and narrowing price gaps.
Market making plays a critical role in reducing friction within digital asset markets. By consistently placing buy and sell orders, market makers supply order book liquidity. This liquidity is commonly measured by the bid-ask spread, or the price difference between buyers and sellers. A wider spread reflects higher illiquidity and higher implicit trading costs for participants.
In a highly liquid market, trading costs are minimized. Market makers help bridge the gap between buyers and sellers by absorbing short-term imbalances in supply and demand. In exchange, they earn a small spread, which compensates them for inventory risk, volatility exposure, and operational costs.
Despite its importance, market making is frequently perceived as opaque. This perception is partly due to the complexity of trading strategies used by large participants, including hedging, portfolio rebalancing, and speculative positioning. Some firms further obscure their activity through dealer markets or non-displayed liquidity venues, which adds to the lack of transparency.
This limited visibility has contributed to distorted perceptions of market makers as extractive rather than additive participants. In practice, high-quality market makers enhance market efficiency, improve price discovery, and lower execution costs for all participants.
However, not all market making is equal. Market participants often struggle to evaluate the quality of liquidity providers and to distinguish between those that deliver sustainable liquidity and those that engage in predatory behavior. The absence of clear frameworks for assessment has increased the need for education and transparency.
This report aims to address these challenges by clarifying the role of market making in digital asset markets. It introduces the core principles of professional market making, outlines the structure of modern digital asset markets, and examines the business models employed by market makers.
The analysis focuses on intermediated market structures rather than automated market makers (AMMs). It examines interactions between investors and liquidity providers across centralized exchanges, decentralized exchanges, and hybrid market structures. Hybrid markets, in particular, offer a realistic representation of digital asset trading, combining electronic order books with human or institutional liquidity provision.
Finally, the report provides perspective on how market making in digital assets differs from traditional financial markets and offers insight into how this function is likely to evolve as the ecosystem matures