Recently studying the role of market makers, I found that this concept actually has a very long history. As early as the 18th century, the London Stock Exchange already had market makers operating. Their job was to act as a bridge between buyers and sellers, providing liquidity. In modern times, the NYSE calls them Specialists, while HKEX refers to them as designated dealers, but essentially they are the same — creating markets and providing quotes.

Market makers can be large institutions, individual traders, or even exchanges themselves sometimes participate in market making. But honestly, in today’s highly specialized financial markets, the main market makers on mainstream exchanges are basically monopolized by large institutions.

The core work of a market maker actually boils down to two things. First is providing two-sided quotes — placing both buy and sell orders on the trading platform, profiting from the bid-ask spread. This spread may seem small, but accumulated over many trades, it becomes the main source of income for market makers. Second is managing the order book, which involves placing multiple orders at different price levels to increase market depth, and dynamically adjusting order positions and quantities based on market changes.

The composition of an order book is actually quite simple. Buy orders are arranged from high to low price, sell orders from low to high price, and the difference between them is the spread. The goal of a market maker is to keep this spread within a relatively narrow range, enabling quick transactions and providing a smooth trading experience. Large exchanges often offer dedicated trading interfaces to market makers, allowing them to execute high-frequency market-making strategies.

When a new token is listed, project teams usually also collaborate with market makers. In this process, market makers mainly provide liquidity support, maintain the order book, and assist in price discovery. The cooperation agreement clearly specifies the scope of services, fee structure, duration and termination conditions, as well as the division of risk responsibilities between both parties.

However, market making is not always guaranteed profit. During periods of intense market volatility, quotes can suddenly turn unfavorable, leading to losses. Liquidity can dry up unexpectedly, information asymmetry and counterparty default can also cause market makers to lose money. The extreme market conditions like the recent LUNA crash are vivid examples, where many market makers suffered heavy losses.

Talking about well-known market makers in the crypto space, Jump Trading is a veteran, established in 1999, with deep technical strength crossing from traditional finance into crypto markets. Wintermute is relatively younger, founded in 2017, but has grown rapidly and is known for algorithmic trading. GSR Markets is also an old player, active since 2013 in global crypto markets, providing complex trading solutions. There’s also DWF Labs, founded in 2022, which has already made a name in market making, and besides that, actively invests in well-known projects like MASK, YGG, and TON.

Basically, the role of market makers is becoming increasingly important in the crypto market. The liquidity they provide directly impacts trading experience. Understanding how market makers operate is also very helpful for us to grasp the microstructure of markets.