Market Maker: How Professionals Control Crypto Markets

Crypto markets operate thanks to the constant balance of supply and demand. But who maintains this balance? The answer is simple — market makers, professional traders, and companies that provide liquidity and simultaneously earn huge profits from this process. A market maker is not just a trading participant; they are the architect of prices, setting market conditions according to their own rules.

Who is a market maker and what is their role

A market maker is a professional market participant, usually a company or fund, that actively creates trading conditions by simultaneously placing buy and sell orders. Their main function is to maintain liquidity, meaning they enable quick buying or selling of an asset without sharp price swings.

At first glance, a market maker appears to be a benefactor of the market: stabilizing prices, reducing volatility, and making trading easier for ordinary users. However, behind this smooth surface lies a complex system that allows professionals to earn huge sums from spreads and informational advantages.

Liquidity providers vs. market makers: key differences

It’s important to understand the difference between a market maker and a regular liquidity provider (LP). While both ensure market liquidity, their approaches differ radically.

A liquidity provider is a broader category, including: ordinary users who deposit funds into decentralized platform pools (e.g., Uniswap); large investors and institutional players; funds, including venture and hedge funds. LPs mainly operate passively — they deposit assets and earn a share of trading fees.

In contrast, a market maker works actively and aggressively. They constantly place and cancel orders, analyze market movements in real time, use algorithmic trading and high-frequency strategies. LPs wait for fees, while market makers generate activity and profit from the spread between buy and sell prices.

How a market maker gains access to confidential information

On centralized exchanges, market makers almost always sign non-disclosure agreements (NDAs), granting them access to confidential information. This is a key factor giving them an advantage over regular traders.

Market makers gain access to: overall order book volume; information about large asset inflows; details of liquidity flows; special trading conditions (reduced fees, priority access to new listings). For example, if a new token is about to be listed, the market maker knows in advance about liquidity levels, supply volume, and can plan their strategy accordingly.

This information provides a huge advantage. An ordinary trader operates blindly, reacting to market signals, while the market maker already knows how events will unfold and positions themselves in advance.

Five ways to manipulate the market

Market makers have resources and technical capabilities unavailable to regular traders. These advantages are often used to manipulate prices for their own benefit.

Spoofing — one of the most common methods. The market maker places large buy or sell orders without the intention of executing them. For example, they place a huge buy order to create the illusion of high demand. The market reacts, the price starts rising, attracting other traders. Once the order triggers buying, the market maker cancels it and begins selling, profiting from the spread.

Pump and dump — a group of market makers coordinate to inflate the price of an asset through mass purchases. Retail traders see the rise and join the movement, hoping to profit. When the price peaks, market makers exit en masse, crashing the price and leaving retail traders with losses.

Stop hunting — market makers track levels where other traders’ stop orders are concentrated. They then place large orders to break through these levels. For example, if many stop-losses are at $40,000 for BTC, the market maker may push the price down to that level, gather liquidity, then quickly reverse the market.

Wash trading — market makers buy and sell the same asset simultaneously, creating the illusion of high trading activity. This attracts other traders, allowing the market maker to build a profitable position before real market movements.

Spread manipulation — market makers adjust the spread depending on their goals. To raise the price, they narrow the spread, making buying easier and attracting buyers. To lower the price, they widen the spread, making it harder to open positions and inducing panic.

Major players in crypto market making

Market making is carried out by specialized firms with access to vast capital and advanced algorithms. Leading companies include:

Jump Trading — one of the largest high-frequency trading firms globally, actively operating in crypto markets.

Citadel Securities — an American firm controlling a significant share of trading volumes in stocks and cryptocurrencies.

Jane Street — a well-known algorithmic trader working across traditional and crypto markets.

Alameda Research — before the FTX collapse in 2022, was the largest market maker in crypto, illustrating how market makers are embedded in major ecosystems.

Often, behind market makers are exchanges themselves, large investment funds, and institutional investors who finance market makers to ensure liquidity on their platforms. This creates conflicts of interest: exchanges want stability but also profit from market maker activities.

Why do exchanges need market makers

Despite all manipulations, exchanges actively cooperate with market makers for several reasons. First, liquidity provision — without market makers, markets would be illiquid, with huge spreads and infrequent trades. This would make trading expensive and inconvenient for ordinary users.

Second, price support during the launch of new trading pairs. At the start, market makers artificially keep prices within reasonable bounds, preventing catastrophic jumps that could scare off new participants.

Third, market makers provide a certain level of stability, paradoxically protecting the market from complete chaos. Structured manipulation can sometimes be preferable to total disorder.

How a market maker operates in practice

Let’s consider a typical scenario of a market maker working during the listing of a new token. An exchange prepares to launch a new asset and contracts a market maker to support liquidity. The market maker receives tokens at a fixed (usually discounted) price.

At the start of trading, the market maker places large buy and sell orders, creating a narrow spread and smoothing sharp price swings. This attracts retail traders who see stability and activity. The market maker earns income from two sources: the spread (difference between buy and sell prices) and a share of trading fees. As activity grows, the market maker can gradually exit positions, profiting from the token’s price increase.

What you need to know about market makers

A market maker is a key figure in the crypto market, simultaneously creating and destroying fair wealth distribution. At first glance, they are necessary for market functioning, but in reality, they operate within a system that systematically disadvantages retail traders.

Market makers possess informational, technical, and capital advantages. They have direct links with exchanges, sign NDAs, work with huge sums of money, and use algorithms that react faster than humans can.

The average trader often falls victim to this asymmetry. While market makers systematically profit from spreads, stop hunts, and coordinated manipulations, retail traders trade blindly, lacking access to the information market makers have.

Understanding how market makers operate is not just theoretical knowledge; it’s a practical necessity for survival in volatile crypto markets. Market makers are the architects of prices, pulling the strings behind the scenes, and knowing their methods can help traders better protect themselves from manipulation.