Learn what crypto market making is and how it works. Discover the role of a crypto market maker, how liquidity is provided, and why crypto market making is important for efficient trading.
Updated August 22, 2026
Learn what crypto market making is and how it works. Discover the role of a crypto market maker, how liquidity is provided, and why crypto market making is important for efficient trading.
Every time you trade a cryptocurrency and it fills instantly at a fair price, market making is the reason it worked. Just as in traditional finance, someone or something has to stand ready on the other side of your trade, providing liquidity so you're not left waiting for a matching buyer or seller. But crypto market making is uniquely interesting, because it happens in two fundamentally different ways. On centralized exchanges, it looks much like traditional market making, professional firms posting two-sided quotes and capturing the spread. On decentralized exchanges, something genuinely novel replaces the human market maker entirely: smart contracts, liquidity pools, and mathematical formulas that let anyone provide liquidity. Understanding both is key to understanding how crypto markets actually function.
This guide explains what crypto market making is, how it works on centralized exchanges (CEXs) versus decentralized exchanges (DEXs), the mechanics of automated market makers (AMMs), and what all of this means for you as a crypto trader. The recurring theme is that crypto market making comes in two flavours, the familiar order-book model and the innovative AMM model, each solving the same problem, providing liquidity, in completely different ways. Skyriss offers crypto exposure within a regulated trading environment, and understanding this liquidity landscape helps put that in context. This article is educational and does not constitute investment advice, and crypto trading carries a high risk of losing money.
For readers who want the core idea immediately, here it is, and the key is that crypto has two distinct models.
Crypto market making is the practice of continuously providing prices at which others can buy or sell a cryptocurrency at any moment, ensuring liquidity. It happens in two very different ways.
On centralized exchanges (CEXs), market making works like traditional finance: professional firms post two-sided limit orders (a bid to buy and an ask to sell) on an order book and profit from the bid-ask spread, while managing their inventory risk. In 2026 this is almost entirely algorithmic.
On decentralized exchanges (DEXs), there's no order book and no professional intermediary. Instead, automated market makers (AMMs), smart contracts holding liquidity pools of tokens, set prices using a mathematical formula. Anyone can deposit tokens to become a liquidity provider and earn a share of trading fees, though they take on a risk called impermanent loss.
So crypto market making is either the familiar order-book model run by professionals, or the novel AMM model open to anyone, both solving the same problem of providing liquidity. The rest of this guide explains each, and how it connects to trading crypto.
At its core, crypto market making is the same fundamental activity as market making anywhere: continuously quoting prices so that other participants can buy or sell an asset on demand, without distorting the price or waiting for a natural counterparty. A market maker stands ready with capital to absorb and redirect order flow, providing the liquidity that makes trading smooth and efficient.
The purpose is identical to traditional market making. Without market makers, a crypto trader wanting to buy would have to wait for someone wanting to sell the same token at the same price and moment, which happens unreliably, especially for less popular tokens. Market making solves this by ensuring there's always a price available to trade against, providing liquidity, tightening spreads, and enabling instant execution. The better the market making on an asset, the easier and cheaper it is to trade.
What makes crypto distinctive is the two completely different architectures through which this happens. In traditional finance, market making is almost always the order-book model. In crypto, that order-book model exists on centralized exchanges, but a second, radically different model, the automated market maker, powers decentralized exchanges. These aren't just two brands of the same thing; they're structurally different solutions to the liquidity problem, and understanding both is what makes crypto market making genuinely worth learning.
The centralized exchange model will feel familiar if you understand traditional market making, because it works on the same principles.
A centralized exchange establishes prices for trading pairs through an order book, a system that collects and matches offers from buyers and sellers. Market makers on a CEX provide liquidity by continuously posting limit orders on both sides of that order book: a bid at which they'll buy, and an ask at which they'll sell. They keep these orders in the book and refresh them constantly as conditions change, standing ready to trade against incoming orders at all times.
Through the bid-ask spread, exactly as in traditional finance. The spread is the difference between the highest bid and the lowest ask, and a market maker who buys at the bid and sells at the ask captures this spread as profit on each completed round-trip trade. For example, a token trading around $1.00 might have a bid of $0.999 and an ask of $1.001, and the market maker earns that small gap repeatedly across high volume. As with any market making, this comes with inventory risk, the market maker holds positions that can move against them, so they must actively manage and hedge that inventory, adjusting quotes to control their exposure. It's a risk-management business, not a prediction business.
Because crypto markets are uniquely challenging: they trade 24 hours a day, seven days a week, with no closing bell, and they're often highly volatile. This means market makers must manage their orders and inventory continuously, around the clock, reacting to sharp price movements that can turn inventory positions into losses quickly. Manual trading cannot match the required speed or consistency, which is why virtually all CEX crypto market making in 2026 is done algorithmically. Automated systems monitor order book depth, recent trades, volatility, and inventory levels simultaneously, adjusting strategy in real time. Because of this complexity, many token projects outsource their CEX market making to specialised professional firms rather than attempting it in-house. The result is that CEX market making, while structurally familiar, is technically demanding in the always-on, volatile world of crypto.
Here's where crypto does something genuinely different, replacing the professional market maker and the order book entirely with code and mathematics.
Decentralized exchanges don't use order books or rely on professional intermediaries. Instead, they use an automated market maker (AMM), a protocol built from smart contracts that enables trading without matching individual buy and sell orders. This was one of the key innovations that powered the growth of decentralized finance, because it solved the liquidity problem for a permissionless, intermediary-free environment where traditional order-book market making was impractical.
Through liquidity pools and a mathematical pricing formula. Instead of a market maker posting quotes, an AMM holds a pool of two tokens, deposited by users called liquidity providers, and prices trades algorithmically based on the ratio of the two tokens in the pool. The most common approach uses a constant product formula, often written as x times y equals k, which keeps the product of the two token reserves constant. When a trader swaps one token for another, the smart contract adjusts the pool's balances and recalculates the price according to the formula. No counterparty, no order matching, and no professional market maker is needed, the maths and the code do the work. This is the same liquidity-pool mechanism that underpins decentralized trading generally, applied here as the market-making engine itself.
This is the revolutionary part. On centralized exchanges, market making is typically limited to professional firms with significant capital. AMMs open it up: anyone, regardless of capital size, can become a liquidity provider by depositing tokens into a pool, and in return they earn a share of the trading fees generated by that pool. This created an entirely new category of activity in crypto, letting ordinary participants earn from providing liquidity in a way traditional market making never allowed.
But it comes with a significant, often-underestimated risk: impermanent loss. Because the AMM automatically rebalances the pool as trades occur, a liquidity provider can end up with a different, and potentially less valuable, mix of tokens than they deposited, compared to simply holding the tokens. If the price ratio of the pooled tokens moves significantly, the provider can be left worse off than if they'd never provided liquidity, and this loss becomes permanent if they withdraw at an unfavourable ratio. So while AMMs democratised market making, they also introduced a genuine risk that the trading fees earned may or may not offset. Providing liquidity to an AMM is not the risk-free passive income it's sometimes marketed as, and impermanent loss is the reason why.
Setting the two models side by side clarifies how differently crypto solves the liquidity problem.
The intermediary differs fundamentally. CEX market making relies on professional market makers, usually well-capitalised firms, actively managing orders on an order book. DEX market making removes the professional intermediary entirely, replacing it with a smart contract and a pool funded by ordinary liquidity providers.
The pricing mechanism differs. On a CEX, price emerges from the order book as market makers and traders post bids and asks. On a DEX, price is set algorithmically by the AMM's formula based on the pool's token ratio, with no order book at all.
Who can participate differs. CEX market making is largely the domain of professional firms with significant capital and sophisticated technology. AMM-based DEX market making is open to anyone who can deposit tokens into a pool, democratising the role.
The risks differ. CEX market makers manage inventory risk and the demands of quoting continuously in a volatile, 24/7 market. DEX liquidity providers face impermanent loss and the risks of the underlying smart contracts, alongside crypto's volatility. And custody differs too: on a CEX, users typically entrust funds to the exchange, whereas on a DEX, users retain control of their assets until a trade executes, removing certain counterparty risks but introducing others.
The common thread is that both models exist to solve the same problem, providing liquidity so people can trade on demand, but they do it through opposite philosophies: centralised, professional, and order-book-based versus decentralised, open, and formula-based. Crypto is unusual in running both at scale simultaneously.
Understanding all this is genuinely useful, because it shapes your experience whenever you trade crypto.
The quality of market making on an asset directly affects your trading. Good market making, whether professional CEX market making or a well-funded AMM pool, means tighter spreads, better liquidity, and less slippage, so you can enter and exit positions closer to the price you expect. Poor liquidity, a thinly traded token or a small AMM pool, means wider spreads and more slippage, raising your real cost of trading. So knowing why liquidity varies helps you understand your costs and choose what and where to trade more wisely.
The two models also carry different implications. If you provide liquidity to an AMM, you're effectively acting as a market maker yourself, and you need to understand impermanent loss and smart contract risk before doing so, because the "earn fees passively" pitch hides real risk. And if you trade on a DEX, the AMM's formula means large trades in small pools cause significant slippage, which is worth anticipating.
For traders who simply want exposure to crypto price movements without engaging directly with these mechanics, there's another route worth understanding. Crypto can also be traded as a contract for difference (CFD), where you take a position on the price without owning the underlying token, providing liquidity to a pool, or navigating DeFi's mechanics like impermanent loss. Skyriss offers crypto exposure within a regulated trading environment, where you trade the price movement rather than participating in market making yourself. This is a different proposition from providing liquidity on a DEX or trading on a crypto exchange, and it suits traders who want price exposure with the protections of a regulated broker. The important caution, as always, is that crypto is highly volatile, and trading it, especially with leverage as CFDs allow, carries significant risk that no market structure removes.
Crypto market making is the practice of continuously providing prices at which others can buy or sell a cryptocurrency at any moment, ensuring liquidity. It happens two ways: on centralized exchanges through professional market makers posting orders on an order book, and on decentralized exchanges through automated market makers (AMMs) using liquidity pools and formulas.
On centralized exchanges (CEXs), professional firms post two-sided limit orders on an order book and capture the bid-ask spread, like traditional market making. On decentralized exchanges (DEXs), there's no order book, an automated market maker uses smart contracts, liquidity pools, and a mathematical formula to set prices, and anyone can provide liquidity.
An AMM is a smart-contract protocol that enables trading on decentralized exchanges without an order book. It holds liquidity pools of tokens and prices trades algorithmically based on the ratio of assets in the pool, commonly using a constant product formula. When a trade occurs, the contract adjusts the balances and recalculates the price.
On centralized exchanges, market makers profit from the bid-ask spread, buying at the bid and selling at the ask across high volume, while managing inventory risk. On decentralized exchanges, liquidity providers earn a share of the trading fees generated by the pool they contribute to, though they face impermanent loss.
Impermanent loss is the risk faced by liquidity providers on AMMs. Because the pool automatically rebalances as trades occur, a provider can end up with a less valuable mix of tokens than if they'd simply held them. It becomes permanent if they withdraw at an unfavourable price ratio, and it can outweigh the fees earned.
On centralized exchanges, market making is largely limited to professional firms with significant capital and technology. On decentralized exchanges using AMMs, anyone can become a liquidity provider by depositing tokens into a pool and earning a share of fees, which democratised the role, though it carries impermanent loss and smart contract risks.
Because crypto markets trade 24/7 and are highly volatile, requiring continuous, rapid management of orders and inventory that manual trading can't match. In 2026, virtually all centralized-exchange crypto market making is algorithmic, with systems monitoring order book depth, volatility, and inventory in real time and adjusting instantly.
It shapes the spreads and liquidity you experience. Good market making means tighter spreads and less slippage; poor liquidity means wider spreads and higher costs. If you provide liquidity to an AMM, you're acting as a market maker and face impermanent loss. If you trade crypto as a CFD, like with Skyriss, you take price exposure without engaging in market making yourself.
Crypto market making is a fascinating case of the same problem solved two completely different ways. On centralized exchanges, it mirrors traditional finance: professional firms post two-sided quotes on an order book, capture the bid-ask spread, and manage inventory risk, all algorithmically, around the clock, in crypto's volatile 24/7 markets. On decentralized exchanges, crypto did something genuinely new, replacing the professional market maker and the order book entirely with automated market makers: smart contracts holding liquidity pools that price trades by formula and let anyone become a liquidity provider. Two philosophies, centralised and professional versus decentralised and open, running side by side to keep crypto markets liquid.
For traders, the value in understanding this is practical. It explains why spreads and liquidity vary across tokens and venues, and therefore why your trading costs vary. It reveals that providing liquidity to an AMM makes you a market maker exposed to impermanent loss, not a passive earner. And it clarifies the different routes to engaging with crypto: trading on an exchange, providing liquidity on a DEX, or simply taking price exposure through a regulated instrument.
That last route is where a broker like Skyriss fits, offering crypto exposure within a regulated environment where you trade the price movement rather than running market-making risk yourself, a different and often simpler proposition than navigating DeFi's mechanics. Whichever route you take, understanding the market-making machinery beneath crypto makes you a more informed participant who grasps what's happening on the other side of every trade. And in a market as volatile as crypto, that understanding, alongside disciplined risk management, is part of trading with your eyes open. Crypto trading carries a high risk of losing money, particularly with leverage, and no market structure changes that. This article is for educational purposes only and does not constitute investment advice. Trading involves significant risk.
