Market Makers: Who Provides the Liquidity You Trade Against

When you buy on an exchange, someone is selling. In most cases that someone is not another retail participant with an opposing view. It is a firm that quotes both sides of the market continuously and has no opinion about direction.

What market making is

Posting a bid and an offer at the same time, on both sides of the current price, and updating them continuously as conditions change.

The firm profits from the spread: buying slightly below the mid price and selling slightly above it, many times. It does not want to accumulate a position, and it hedges whatever inventory it acquires.

The business is high volume, thin margin, and heavily dependent on technology.

How they are paid

The spread. The primary source.

Fee rebates. Many venues charge less, or pay, for orders that add liquidity to the book rather than removing it. This is a direct subsidy for quoting.

Contractual arrangements with issuers. For newly listed tokens, a project frequently contracts a market maker to provide liquidity, sometimes lending tokens for the purpose and attaching options to the arrangement.

That third category is worth understanding. It means the depth visible on a new listing may be provided under an agreement rather than arising from natural interest, and the terms of those agreements affect supply in ways that are rarely disclosed.

Why this matters to an ordinary trader

Liquidity is conditional. Market makers widen their quotes or withdraw entirely during extreme volatility, because inventory risk rises. That is exactly when depth is most needed, and it is why spreads blow out during crashes.

Depth is concentrated. On most venues, a small number of firms provide the majority of the quoted depth. The order book looks like many participants and is not.

Your execution quality depends on them. Slippage on any order of consequence is a function of the depth these firms choose to post.

What this explains

Why spreads are tight in calm markets and wide in volatile ones. Why a newly listed token can have apparently deep liquidity that disappears after the market-making agreement ends. Why the same trade costs different amounts at different venues despite similar advertised fees.

Checking it for yourself

The order book tells you. Depth within one percent of mid, on each side, at a quiet hour and again during a volatile one.

A venue where that figure collapses under stress is one where your execution will be worst precisely when you most want to act. Depth figures published by a crypto exchange with low fees are the right input for that comparison, since aggregated volume statistics have historically included wash trading from smaller platforms.

The structural point

Liquidity in this market is not a property of the asset. It is a service, provided by firms with commercial terms, that can be withdrawn.

Any analysis treating market capitalisation as a measure of how much could actually be sold is ignoring that, which is why a token with a large notional valuation and a few hundred thousand dollars of real depth does not have a price in any meaningful sense. A related option here is a provider handling cross-border payments in fintech.