1. Introduction

The crash on October 11 taught the market a very direct lesson: prices are not pierced by a "single sell order," but are swallowed by a liquidity vacuum. As multiple market makers paused their market-making activities to reduce risk exposure, traders lost their counterparties, which, combined with forced liquidations and deleveraging, caused market prices to be instantly breached, amplifying price declines and slippage, becoming an important accelerator of the "waterfall" crash. In the crypto market, token prices are not simply generated by the natural collision of buy and sell orders, but are supported by the continuous quotes and depth provided by market makers. Market makers are not only the lubricants of matching but also the central nervous system of price discovery. Once this "invisible hand" withdraws, the market loses its gravitational balance. So, how does this invisible hand stabilize price discovery, and why is it "absent" in extreme moments, thereby changing the path and speed of market movements?

This article will use plain language to break down the role and profit model of market makers in the crypto world, systematically review the backgrounds, styles, and representative tokens of seven leading market makers, discuss the controversies faced by market makers, and provide suggestions for rebuilding trust, opening the black box of market-making mechanisms for readers to better understand "market-making behavior."

2. Understanding the Functions and Roles of Market Makers

Market makers are both the price stabilizers of the market and the risk buffers of the system. When they operate efficiently, the market is stable, deep, and has low slippage; when they are absent or malfunctioning, the entire system can become instantly unbalanced.

1. Functions and Roles of Market Makers

Market Makers (MM) are the "invisible hand" of the crypto market, bearing important functions:

• Continuous two-sided quoting and depth maintenance: Continuously posting buy/sell prices on CEX order books, DEX RFQs, and AMM pools, dynamically adjusting spreads and order sizes according to flow and risk thresholds, maintaining 1%/2% depth and replenishment speed, reducing slippage and impact costs (including AMM position rebalancing and concentrated liquidity range management).

• Price discovery and cross-scenario linkage: Quickly pulling dispersed market prices back to consistency through arbitrage trading across exchanges/chains/spot-futures/cross-periods and stablecoins/anchored assets; connecting ETF/ETP/RFQ networks to promote linkage and basis repair between OTC and on-exchange, on-chain and off-chain.

• Inventory management and risk absorption: Short-term absorption of buy-sell imbalances, "packaging" dispersed trading demands; using perpetuals/futures/options/borrowing tools to neutralize inventory, bringing funding rates and spot-futures basis back to normal ranges.

• New launches and cold start liquidity: Providing minimum depth and market-making quotas at TGE/new launch stages, using token lending/inventory pledging and market-making rebate agreements to smooth opening volatility; accommodating institutional/whale large orders, reducing explicit spreads and implicit impact costs, helping assets quickly enter a "tradeable state."

It is evident that the social attribute of market makers lies between public goods and competitive games. On one hand, they enhance market efficiency with capital, algorithms, and professional capabilities, allowing everyone to complete transactions at reasonable costs; on the other hand, they also possess enormous structural information and decision-making power. Once incentives misalign or risk controls fail, they can turn from "market stabilizers" into "volatility amplifiers."

2. Main Types of Market Makers

Market makers of different sizes, strategies, and positions play different roles in the crypto market. The following are the three main types:

• Professional Market Makers: Professional market makers fill order book liquidity through advanced algorithms and high-speed matching, narrowing spreads and improving trading execution experience. These institutions have large capital, algorithm-driven operations, cross-scenario coverage (CEX, DEX, OTC, ETF/ETP), and mature risk control systems. They often continuously quote and provide depth for mainstream assets (such as BTC, ETH, SOL) and deploy market-making algorithms and hedging mechanisms across multiple exchanges/chains.

• Advisory/Project Market Makers: Referring to market makers that enter in the form of "new launch support + liquidity packages," usually signing market-making agreements with project parties to provide token lending, initial orders, rebate incentives, etc. Once the project is listed, they are responsible for early quoting and matching to maintain the minimum tradeable state. Although these institutions may not have the capital scale of large professional market makers, they are more active in "new coin cold starts vs. long-tail tokens." Market-making contracts often include terms like "token lending," "market-making rebates," and "minimum liquidity guarantees."

• Algorithmic Market Making or AMM LP: Including liquidity providers (LP) in AMM models, some algorithmic, low-human-intervention quoting systems, and small market-making institutions or bot services. These participants are characterized by smaller or medium capital scales, primarily participating in on-chain AMM pools or customized matching protocols; their risk control and hedging capabilities may be weaker than those of professional market makers, making them prone to liquidity withdrawal or depth shrinkage in extreme market conditions; they are more fragmented in the market, providing "thin liquidity" support for long-tail tokens or multi-chain protocols.

3. Market Making Mechanisms and Profit Models

Although outsiders often imagine market makers as "the house within the system," in reality, their profit model resembles a "high-frequency fee factory," accumulating profits through small but stable spreads.

• Spread Capture: This is the foundation of all market-making activities. Market makers maintain stable two-sided quotes between the bid and ask prices, and when market transactions occur, they profit from the difference between the buy and sell prices. For example, if BTC has a buy order at $64,000 and a sell order at $64,010, when a user sells at the ask price, the market maker earns a $10 spread profit. Although the profit per transaction is small, at a transaction frequency in the millions, the annualized returns can be substantial.

• Fee Rebates and Incentives: Most exchanges adopt a maker-taker fee structure: the maker enjoys lower fees or rebates for providing liquidity, while the taker pays higher fees. Market makers can maintain positive rebate income over the long term due to massive transaction volumes and algorithmic automation. Additionally, exchanges or project parties often provide extra market-making incentives, such as returning a certain percentage of fees, distributing token incentives, or establishing market-making subsidy pools in the early stages.

• Hedging and Basis Trading: The inventory held by market makers inevitably bears the risk of price fluctuations. To maintain a "neutral position," they hedge through perpetual contracts, futures, options, or borrowing. For example, when there is an excess of ETH in inventory, they may short an equivalent amount of ETH in the futures market to lock in risk exposure. Meanwhile, if there is a discrepancy between spot and futures prices (i.e., basis), market makers may also engage in arbitrage through "buying low and selling high," earning risk-free profits.

• Statistical Arbitrage and Structured Opportunities: In addition to regular spread profits, market makers also seek various micro-structural opportunities:

• Inter-period arbitrage: Price differences between different futures contracts of the same asset;

• Cross-asset arbitrage: Price deviations between correlated assets (such as stETH and ETH);

• Volatility arbitrage: Utilizing differences between implied volatility and historical volatility in options;

• Funding rate arbitrage: Balancing funding costs across different markets through borrowing or hedging;

These strategies collectively form the "profit matrix" of market makers. They do not bet on direction like speculators but rely on scale, speed, risk control, and algorithms to win. In a market with daily trading volumes exceeding $10 billion, even an average spread of just 0.02% is sufficient to support a massive profit system.

3. Overview of Mainstream Market Makers

The existence of market makers has transformed the crypto market from "disorderly quoting" to a system of "sustainable matching." Currently, the most mainstream market makers include Jump Trading, Wintermute, B2C2, GSR, DWF Labs, Amber Group, and Flow Traders. This chapter will analyze the backgrounds, styles, scales, and token holding structures of these market makers.

1. Jump Trading

Source: https://intel.arkm.com/explorer/entity/jump-trading

Introduction: A traditional high-frequency quant firm, involved in market making and investment research infrastructure. According to Arkham data, as of October 23, 2025, Jump Trading's holding scale is approximately $740 million.

Market Making Style: The portfolio is more inclined towards "capital management + medium to low beta positions": a high proportion of stablecoins and staking derivatives; during significant market fluctuations, they dynamically adjust staking/re-staking positions and conduct large redemptions and exchanges.

Representative Holding Tokens

• Top five holding assets: SOL, BTC, USDC, USDT, ETH

• Hot holding assets: USD1, WLFI, W, SHIB, JUP, etc.

2. Wintermute

Source: https://intel.arkm.com/explorer/entity/wintermute

Introduction: An established quantitative market maker covering both centralized and decentralized scenarios; very active in the hot new coin and meme sectors in the past two years, providing liquidity for multiple project launches. According to Arkham data, as of October 23, 2025, Wintermute's holding scale is approximately $500 million.

Market Making Style: Cross-market, cross-asset market making + event-driven (new coins/TGE) + high-frequency and grid strategies used in tandem; during the cold start phase of new assets, they typically receive allocations or accept loans to provide two-sided quotes. They have been publicly disclosed as one of the market makers for Ethena (ENA).

Representative Holding Tokens

• Top five holding assets: SOL, BTC, USDC, MKR, RSTETH

• Hot holding assets: LINK, ENA, PENGU, FARTCOIN, Binance Life, etc.

3. B2C2

Source: https://intel.arkm.com/explorer/entity/b2c2

Introduction: An established institutional market maker and OTC liquidity provider, controlled by the Japanese financial group SBI; deeply collaborates with several large trading platforms and compliant scenarios. According to Arkham data, as of October 23, 2025, their holding scale is approximately $140 million.

Market Making Style: Clearly characterized by "institutional prime brokerage + liquidity outsourcing"; stable coverage of both mainstream coins and high liquidity long-tail coins, with market commentary disclosing transaction volumes and buy/sell directions by coin type.

Representative Holding Tokens

• Top five holding assets: BTC, ETH, RLUSD, LINK, AAVE

• Hot holding assets: LINK, BNB, UNI, FDUSD, ASTER, etc.

4. GSR Markets

Source: https://intel.arkm.com/explorer/entity/gsr-markets

Introduction: Established in 2013, with comprehensive compliance qualifications (including a Singapore license), GSR is one of the earliest professional crypto market makers. According to Arkham data, as of October 23, 2025, their holding scale is approximately $60 million.

Market Making Style: "Institutional temperament + full-stack trading"—market making, structured products, and programmatic execution run in parallel; often acts as the official market maker for projects, participating in liquidity management during TGE/circulation periods.

Representative Holding Tokens

• Top five holding assets: ETH, RNDR, ARB, SOL, SXT

• Hot holding assets: AAVE, FET, RSC, SKY, SHIB, etc.

5. DWF Labs

Source: https://intel.arkm.com/explorer/entity/dwf-labs

Introduction: Driven by "investment + market making," frequently active and covering a wide range of tokens. According to Arkham data, as of October 23, 2025, DWF Labs' holding scale is approximately $40 million.

Market Making Style: New asset cold starts + secondary market making run in parallel, adept at utilizing the broad coverage of exchanges and multi-chain scenarios for spread and inventory management; portfolio style balances "Beta + long-tail."

Representative Holding Tokens

• Top five holding assets: WLFI, JST, FXS, YGG, GALA

• Hot holding assets: SONIC, JST, PEPE, SIREN, AUCTION, etc.

6. Amber Group

Source: https://intel.arkm.com/explorer/entity/amber

Introduction: A full-stack trading and liquidity provision institution with roots in Asia and a global layout; combines market making, derivatives, and custody/infrastructure services. According to Arkham data, as of October 23, 2025, their holding scale is approximately $26 million.

Market Making Style: Primarily focused on "institutional market making + project cold starts," supplemented by research-driven and event-driven strategies; often stabilizes quotes and depth through token lending/quotas during TGE/initial launch phases.

Representative Holding Tokens

• Top five holding assets: USDC, USDT, G, ETH, ENA

• Hot holding assets: G, ENA, MNT, LINEA, YB, etc.

7. Flow Traders

Introduction: A leading ETP/ETF market maker based in Europe, entered the crypto space in 2017, and is now one of the core market makers and risk hedgers for crypto ETPs. According to Arkham data, as of October 23, 2025, their holding scale is approximately $15 million.

Market Making Style: Centered around on-exchange ETPs, providing continuous quotes and redemption connections for secondary market investors for passive/active products; covers over 200 crypto ETPs, with underlying assets extending to over 300 tokens.

Representative Holding Tokens

• Top five holding assets: ETH, BTC, USDT, USDC, SOL

• Hot holding assets: FIL, AVAX, SHIB, WLFI, DYDX, etc.

These seven market makers collectively manage and operate on-chain visible assets exceeding $1.5 billion, playing roles in depth provision, price discovery, and risk absorption across multiple exchanges and on-chain protocols. From high-frequency quant to institutional market making, from new coin cold starts to ETF hedging, from Asia to Europe and America, these seven market makers cover almost all mainstream and hot tokens ranked in the top five hundred by market capitalization, forming the core framework of global crypto liquidity.

4. Controversies and Conflicts Faced by Market Makers

Due to factors such as information asymmetry, incentive misalignment, and opaque contract terms, market making can shift from a public good to a private interest game. The conflicts faced by market makers include price manipulation versus liquidity provision, rational risk control versus market volatility, and public good attributes versus profit-driven motives.

1. Conflict Between Price Manipulation and Liquidity Provision

In the early days of the crypto market, the role of "market maker = spontaneous quoting + investment + consulting" was quite common. However, this overlapping role also means that liquidity providers may bear conflicts of interest: on one hand, they are responsible for providing quotes and stabilizing liquidity for projects, while on the other hand, they may hold or be allocated large amounts of tokens for sale, thus having the incentive to drive prices up and then cash out at lower prices. For example, a contract between Movement Labs and its designated market maker sparked serious controversy: approximately 66 million MOVE tokens (about 5% of the publicly circulating supply) were transferred to a dedicated market-making entity, and the market-making agreement granted the party the clause of "selling once the market cap reaches a certain level," which was executed within a day of the token's launch, resulting in a profit of about $38 million.

It is evident that market makers can be both liquidity providers and tools for price manipulation, so any lack of transparency in market-making arrangements may be viewed as "gray area trading," eroding the trust foundation of the entire market.

2. Conflict Between Rational Risk Control and Market Volatility

Market makers' profits mainly come from spreads, rebates, and hedging gains, while risks can spike during extreme volatility. Rational profit maximization may drive market makers to prioritize self-preservation over "maintaining depth." In extreme market conditions, market makers may collectively withdraw liquidity, thus becoming accelerators of market collapse. The crash on October 10-11, 2025, is a typical scenario. When the market suddenly triggers a risk event, multiple market makers' risk models (such as single-asset exposure, VaR, hedging failures, liquidity pressure thresholds, etc.) are triggered simultaneously, forcing them to choose between "proactive exit" or "temporarily reducing orders."

Although this behavior is a result of rational risk control by market makers, from a macro market perspective, when liquidity providers withdraw simultaneously, the market turns into a situation with only "sell orders" and no "effective buy orders," leading to a "drained" depth, where ordinary market orders can be quickly consumed, and transaction prices deteriorate instantly. The forced liquidation system then triggers more position liquidations, creating a second-level chain reaction, further driving prices down, and the market makers' risk control thresholds are triggered again, resulting in a vicious cycle that ultimately leads to a waterfall decline. In other words, the market collapse is not due to "too many sell orders," but rather "too weak buy orders."

3. Conflict Between Business Expansion and Depth

As the total number of crypto tokens grows exponentially and the narrative lifecycle shortens, market makers face unprecedented structural challenges. The past high-frequency market-making model centered around mainstream coins and a few exchanges now has to cope with a multi-chain, multi-asset, fragmented trading ecosystem. Although leading institutions have advantages in algorithms and capital scale, their models are often designed around high liquidity coins like BTC and ETH, making it difficult to quickly replicate them across hundreds or thousands of new tokens. For market makers, the biggest challenge is no longer "can they be profitable," but "how to expand service boundaries without sacrificing depth."

Market making essentially requires the integration of capital, computing power, and data, but these resources become scarce during rapid market expansion. To cover more assets, market makers must enhance automation and strategy reuse—improving response speed when new assets are listed through unified market-making engines, cross-chain algorithm routing, and AI parameter scheduling. However, this scale expansion inevitably comes with risk spillover: delayed strategy migration leads to distorted quotes, amplified volatility in low liquidity tokens, and increased difficulty in position management.

4. Conflict Between "Public Good" and Profit-Driven Motives

Market making is essentially private capital providing public liquidity: it reduces friction for all traders and enhances price discovery, but individual institutions bear inventory and tail risks. Project and market-making contracts often include terms for borrowing tokens, rebates, and exit thresholds, and KPIs may revolve around "price/market cap" rather than "sustainable depth," inducing behaviors of "pushing prices up—cashing out."

When disclosure and constraints are insufficient, market making can deviate from the role of liquidity providers, degrading from a public good to opportunistic supply. They can stabilize the market, but they can also become points of liquidity fracture.

5. Future Direction: From "Invisible Depth" to "Institutionalized Liquidity"

The true vulnerability of the crypto market lies not in the scale of funds or volatility itself, but in the uncertainty of "who provides liquidity and when they will withdraw." As the number of tokens surges and narratives shift rapidly, the role of market makers is being forced to evolve: from quant teams serving only mainstream assets to a distributed liquidity network covering thousands of tokens, cross-chain assets, and stablecoins. The future challenge is not only "how to do more," but also "how to do it more steadily, transparently, and compliantly."

1. Information Symmetry and Disclosure Transparency

For the market-making ecosystem to be truly healthy, transparency of information is the baseline. The cooperation between project parties and market makers should not remain at the vague slogan of "liquidity support," but should achieve institutionalized contract disclosure:

• Disclose the core terms of market-making contracts, including quotas, token lending amounts, rebate ratios, and exit conditions;

• Disclose the main market makers' list and address whitelist, allowing the public to verify the true source of quotes;

• Regularly publish depth data, spread changes, and market-making efficiency indicators (such as order response time, cancellation rate, fill rate).

For exchanges, market-making behavior should also be included in regular monitoring: monitoring for abnormal spreads, concentrated positions, and unusual cancellation speeds; if signs of manipulation such as "fake orders," "self-trading," or "related account circular trading" are found, they should have the power to suspend or downgrade. In the future, blockchain explorers and analytics platforms can further standardize these indicators, forming a publicly assessable "liquidity quality score." When market participants can visually see which market maker "provides the most stable depth and fastest response," market making will no longer be a black box but a competitive and auditable service.

2. Circuit Breaker and Recovery Mechanisms

In extreme market conditions, market makers' self-preservation is a rational choice, but the market needs "system-level buffering devices." Therefore, circuit breaker and recovery mechanisms will become an important direction for institutionalizing the crypto market.

When major market makers trigger risk control exits, exchanges or protocol layers should automatically initiate a "backup market maker access mechanism," where a pre-registered pool of market makers sequentially replaces those withdrawing, ensuring depth does not evaporate instantly; simultaneously, combined with the depth supplementation plan of the matching engine, smoothing transitions at critical price points with algorithmic limit orders or virtual orders.

Additionally, a layered liquidity circuit breaker similar to traditional finance can be introduced:

• Mild stage: When spreads become excessively wide or depth drops to a warning threshold, pause matching for 3-5 seconds and restrict market orders;

• Moderate stage: When multiple market makers exit and market depth falls below 30% of historical averages, suspend transactions and broadcast risk control announcements;

• Severe stage: The platform or on-chain governance contract temporarily takes over support orders until new market makers are restored.

The goal of this multi-layered protective design is not to "force market makers to stay," but to prevent the market from plunging into a vacuum the moment they withdraw.

3. Balancing Efficiency and Risk Control

As the total number of crypto tokens grows exponentially and narrative half-lives shorten, traditional high-frequency market-making models clearly cannot cover all assets. For market makers, the biggest challenge lies in how to expand the quoting range without distorting risk control.
One potential solution for the future is RFQ 2.0 and intent-based matching. These systems allow users to express "intent," and then different market makers or "solvers" compete to respond with quotes, greatly enhancing the matching efficiency of long-tail assets. For example, intent-based matching protocols like CowSwap and UniswapX have already provided the infrastructure for "distributed market making" at the technical level.

On the other hand, the relationship between project parties and market makers must also shift from implicit incentives to transparent cooperation. Currently, many new tokens still rely on "token lending + market-making rebates" gray arrangements, which provide convenience for short-term liquidity but also harbor the risk of price manipulation. In the future, both parties should replace covert subsidies with on-chain contractual inventory incentives: every token lending, quoting, and recovery should be recorded on-chain, clearly stating terms and time windows, avoiding the perception of "subsidizing—pumping—cashing out."

4. Multi-dimensional Regulation and Self-discipline: Professionalization and Accountability of Market Making

As the crypto market integrates with traditional finance, market makers will gradually fall under clearer regulatory frameworks. Regulation should not only focus on "manipulation" or "insider trading," but also establish a "market-making license + behavior record" system.

• After obtaining a market-making license issued by exchanges or regulators, institutions must sign responsibility clauses and accept regular reviews;

• Market-making behavior records (including cancellation rates, abnormal spreads, and triggered circuit breaker counts) should be archived on-chain and be auditable;

• Non-compliant or high-risk behaviors (such as abusing rebates or failing to disclose self-trading) will trigger "gray lists" and suspension mechanisms.

Additionally, the industry should also promote self-discipline: establish market-making industry associations or alliances to unify SLA standards and disclosure templates; introduce third-party data audits, publish quarterly "market-making performance rankings," and incentivize transparency and robust operations. Only when market making is viewed as a "profession that can be assessed and held accountable" will liquidity no longer depend on trust but truly become a regulatory infrastructure.

Conclusion

Over the past decade, the liquidity of the crypto market has primarily relied on a small group of algorithm teams; in the next decade, it will be jointly supported by institutions, data, and trust. The boundaries of market makers are also being reshaped—they are no longer just operators of "invisible depth," but co-builders of transparency, robustness, and accountability. When on-chain data platforms make market-making behavior "visible," when circuit breaker mechanisms teach the market to self-heal, and when disclosure systems and regulatory frameworks impose more obligations on liquidity providers, the crypto market can truly transition from "flash depth" to "institutionalized liquidity." At that time, prices will no longer be driven by isolated trades but will be supported by a transparent liquidity network; and market makers will evolve from being questioned as "behind-the-scenes operators" to trusted "market infrastructure operators."

About Us

Hotcoin Research, as the core investment research institution of Hotcoin Exchange, is committed to transforming professional analysis into your practical tools. We analyze market trends through "Weekly Insights" and "In-depth Research Reports"; leveraging our exclusive column "Hotcoin Selection" (AI + expert dual screening), we help you identify potential assets and reduce trial-and-error costs. Every week, our researchers will also interact with you live, interpreting hot topics and predicting trends. We believe that warm companionship and professional guidance can help more investors navigate cycles and seize the value opportunities of Web3.

Risk Warning

The cryptocurrency market is highly volatile, and investment itself carries risks. We strongly recommend that investors conduct investments based on a full understanding of these risks and within a strict risk management framework to ensure the safety of funds.

Website: https://lite.hotcoingex.cc/r/Hotcoinresearch

X: x.com/Hotcoin_Academy

Mail: labs@hotcoin.com