Why Do Cryptocurrency Exchanges Work With Market Makers?

Cryptocurrency exchanges are very dynamic ecosystems that never sleep. These are the platforms that are open for trading twenty-four hours a day, seven days a week, unlike traditional venues like stock or commodity exchanges. But what is the driving core of this ceaseless activity?

The main answer to this question lies in the concept of liquidity, which is the basis of any efficient market. In traditional finance, liquidity tends to be more stable because long-established institutions and market makers operate under regulated frameworks that incentivise consistent liquidity provision. Conversely, crypto markets are newer, so liquidity is less predictable and depends heavily on real-time interactions between buyers and sellers. This constant ebb and flow means crypto liquidity must be actively managed. Market makers in crypto fulfil this role by continuously supplying liquidity and fostering trading activity, which helps stabilise prices and attracts a broader range of investors.

Before we dive into the question of why cryptocurrency exchanges work with market makers, let’s take a step back and explore what market makers do and the ways in which their presence shapes the crypto markets in general.

What Is Market Making in Crypto?

Cryptocurrency market making refers to the practice of providing continuous buy and sell orders on a crypto exchange to supply the market with liquidity. A cryptocurrency market maker functions by submitting limit orders on both sides of the order book – for example, offering to buy and sell a certain coin at specified prices. By doing so, the market maker constantly ‘fills’ the order book with liquidity and narrows the gap between the highest bid and lowest ask. This strategy, although not the only one employed by crypto market makers, is called the bid-ask spread.

However, it’s important to differentiate crypto market making from simply holding or releasing assets to the open market as a passive liquidity provider. Market makers actively manage orders and inventory, while certain liquidity providers commit funds in a more passive manner. Although they both contribute to market liquidity, their mechanics and incentives are different. For a complete understanding of the distinctions between market makers and liquidity providers, read DWF Labs’s article on market making versus liquidity provisioning in crypto.

The fundamental role of market makers in sustaining a dynamic order book and overall market stability highlights the primary reasons exchanges collaborate with them to establish efficient and reliable trading environments.

Why Crypto Exchanges Depend on Market Makers

Cryptocurrency exchanges rely largely on crypto market makers such as DWF Labs to ensure a stable and thriving trading environment. Here are some of the primary benefits market makers provide:

Enhanced Crypto Liquidity

First of all, as we’ve mentioned, crypto market makers enhance liquidity on the exchange by providing continuous buy and sell orders for cryptocurrencies traded there, which attract other traders and investors. Increased liquidity, in its turn, decreases price volatility and allows traders to execute orders with minimal price slippage.

Improved Trading Experience

Secondly, improved liquidity leads to a better trading experience. Individual traders benefit from narrower spreads, faster order execution, and overall smoother market operations – all made possible by market makers' activity.

Market Stability

In volatile crypto markets, maintaining price stability is crucial, and that is what market makers do by reducing the impact of massive buy or sell orders. Their presence serves to reduce rapid price fluctuations, resulting in a more predictable environment for all market players.

Crypto Exchange Viability

The long-term viability of cryptocurrency exchanges depends on their ability to attract and retain market makers. Platforms that provide strong liquidity and efficient trading conditions eventually gain more traders and volume, earning a competitive advantage over rivals.

Impact of Crypto Market Makers on Different Types of Exchanges

The landscape of cryptocurrency exchanges has been growing for the last fifteen years, evolving since the early days of Bitcoin and the first cryptocurrency platforms launched in 2010, and continues to evolve, and so do the roles of crypto market makers that preserve liquidity and create efficient markets, whether they operate on a centralised or decentralised exchanges:

• Centralised exchanges (CEXs) rely heavily on crypto market makers to maintain liquidity across several trading pairs, who ensure a seamless trading experience and assist exchanges in maintaining price stability by guaranteeing that there are always active buy and sell orders.
• Decentralised Exchanges (DEXs): In DeFi settings, crypto market makers typically operate distinctively due to the absence of a central authority. To supply liquidity to the traded assets, they might use decentralised liquidity pools or automated market-making strategies. Although DEXs provide more transparency and autonomy to individual users since most operations are performed on-chain, market makers’ functions remain crucial for improving liquidity and trading efficiency.

Summary

In essence, market makers are indispensable partners for crypto exchanges, ensuring a healthier and more vibrant trading environment that benefits all participants in the crypto ecosystem. Their continuous flow of buy and sell orders stabilises markets, narrows spreads, and attracts institutional and retail participants alike. This stability and liquidity depth are particularly crucial as digital assets continue to gain mainstream acceptance, pushing crypto trading to evolve in both scale and sophistication.

At DWF Labs, we work with dozens of top crypto exchanges, trading platforms and decentralised trading protocols. They trust our ability to combine deep liquidity with tailored, partner-first solutions, supporting our partners through strategic advisory, ecosystem connections, and operational growth. As both a market maker and multi-stage investor, we see ourselves as trusted partners and ecosystem builders, committed to creating stability, scalability, and long-term success in the crypto market.