Any financial market is dead if there is no liquidity for traders to trade with. A crypto market maker provides liquidity to markets to ensure a healthy market environment for traders to execute trades and engage in the overall market. Cryptocurrency markets heavily rely on liquidity similar to traditional finance, especially in recent years as markets became more liquid crypto market makers became an essential part of the crypto space.
However, there are some significant differences between different approaches to crypto market making, depending on the providers of such services and certain technical aspects, such as different types of projects and exchanges, that each have their own limitations and possibilities. The main aim of any crypto market maker is liquidity provision, which is crucial to any market if it wants to survive or even thrive in highly competitive and volatile environments, such as the crypto-sphere. The following paragraphs will provide a compact overview to the top crypto market makers as well as their respective pros and cons and the actual tasks of a market maker.
Crypto market makers are the key to any cryptocurrency market for long-term sustainable growth and existence.
Crypto Market Making and Liquidity Provision on Centralized Exchanges
Crypto market making has been gaining traction over the last couple of years as the crypto market matures. And likewise, most reputable exchanges and token projects know how crucial sufficient liquidity is for their assets and their businesses as a whole. This is why they rely heavily on professional crypto market makers to help them provide liquidity for their assets, so that buyers can buy and sellers can sell whenever they please without causing huge market rifts.
There are two different kinds of market making concepts in general
Generally speaking, there are 2 types of inherently different approaches to crypto market making – crypto market makers like Autowhale that act solely in the interest of the client without incentives to countertrade, and profit-oriented market makers that act mainly in the interest of its investors and are not prioritising overall market health in their operations.
1. Liquidity-Driven Model (Market maker driven)
In this traditional model, the ones who provide liquidity using their own funds to trade and (ideally) profit from the PnL (profit and loss) made, generated by the spread (for example crypto market making companies like GSR). This market maker incentivising solution can provide a significant amount of liquidity in a short time frame. In this scenario, of course, the one aiming to profit from the committed funds and using strategies accordingly is the market maker. Most market makers at this point in time, opt for this market making as-a-business model.
2. Incentive-Driven Model (Client driven)
This model refers to crypto market makers that provide their clients with sophisticated algorithmic trading software services to ensure all trades are executed in the client’s interests, following their custom strategies and goals. This means the client’s own funds are leveraged to trade and make the markets, using complex individual strategies that align with the client’s incentives. In this case, PnL stays with the client, and trading activities are best aligned with the client-company goals (for example crypto market making companies like Autowhale). This market making as-a-service model requires a client to commit their own funds for liquidity but maximizes control over the trading strategies, profits and losses stay with the client, and trading goals are aligned with the client’s vision.
Who are the top market makers in crypto? (2023)
Listed below is a comprehensive overview of the top crypto market makers of 2023. These companies excel at liquidity provision through years of experience in the industry, innovative software products, sophisticated trading strategies, or catering perfectly to the needs of their clients.
1. Autowhale
Located in the middle of Europe, Autowhale is a rising star on the crypto market making horizon. Its innovative approach to crypto market making and dedication to catering to the goals and needs of its clients makes this company stand out among others.
Autowhale enables funds, trading desks and token projects with their proprietary trading infrastructure to launch any form of trading and investment strategy at scale embedded in a securely cloud-hosted all-in-one trading system.
Also, the 2019 founded crypto market maker is the only company on this list who provides client-driven market making as a service. Their unique high-frequency trading software enables clients to have full control over their assets and algorithmic trading strategies. They have a strong emphasis on customized and individual solutions (incl. additional services such as support with exchange listings or consulting), and can work with over 90 different crypto exchanges.
2. GSR
The second giant – GSR – on this list is another London-based firm that was founded ten years ago. Based on their many years of experience, they also offer consulting and invest in projects as well. They offer a broad range of services such as providing spot and non-linear liquidity in digital assets, as well as OTC, and exotic derivatives services.
3. Cumberland
They belong to the American company DRW, which provides liquidity for a wide variety of asset classes (traditional and crypto alike) and builds on over thirty years of experience in finance. DRW has offices from New York to Singapore, and they created Cumberland to provide liquidity for the cryptocurrency industry for different markets including spot, options and futures, bilateral crypto options, and nondeliverable forwards. Additionally, they also invest in promising projects.
4. Wintermute
Wintermute is operating out of London and can by now be considered one of the biggest global players in the crypto trading and market making space, providing liquidity on over 50 exchanges and platforms. They handle trading on centralized and decentralized exchanges, as well as off-exchange/OTC. In 2023 their cumulative trading volume exceeded $300B.
5. Bluesky Cap
New-York native Bluesky Cap operates as a quantitative investment manager, as well as digital assets liquidity provider, and asset management. Established in 2014, they have gathered significant experience in the traditional finance world and have since expanded to cryptocurrencies.
Crypto Market Making Explained
Now, to get a fundamental understanding of how crypto market making actually works, the next paragraphs will give an easy to understand overview of market making for crypto projects.
What is market making in crypto?
Market making in crypto describes the practise of providing buy and sell limit orders to a given market so that other market participants can market buy or sell with as little slippage as fiscally possible. The price levels a market maker sets such orders depends on the risk appetite or the requirements of token projects and exchanges. For example: A tight quoted market in a volatile market might increase market health and confidence, however can imply a riskier strategy as markets might end up moving quickly away from current price levels leaving the market maker with an excess of inventory.
Is market making profitable?
Market Making, depending on its objectives, can be a profitable trading practise. The fact that the profit of market making is not necessarily bound to a market going in a certain direction but rather profiting from spreads quoted by the market maker, such strategies if hedged properly can be delta neutral and therefore profitable also in sideways or downward markets.
Wo are the biggest market makers?
The biggest market makers in overall markets are companies like Citadel Securities, Jane Street or Susquehanna International Group. DRW, another large market maker in TradFi, has its own spin-off for crypto – Cumberland.
Conclusion
Ultimately, who the best crypto market maker is, is a question of what the objectives are. Investing in market making has its other merits and limitations to a token project or exchange looking for support with liquidity on their markets. Whoever one works with is certainly also a question of trust and reliability where more reputable players can provide advantages over others.
