Why Institutions Need Market Makers to Confidently Enter Crypto

As more traditional institutions tiptoe into the world of cryptocurrency, one question looms large: How can they enter these volatile markets with confidence? Recent reports indicate institutional adoption of crypto is still early but gaining momentum, especially as regulatory clarity improves. Yet beyond regulation, market liquidity, the ability to buy or sell an asset without drastically moving its price, remains a deciding factor. Institutions from established Web2 industries (think banks, payment companies and fintech firms) need assurance that the crypto markets can handle their large trades and client demands. This is where crypto market makers and liquidity providers become indispensable. They act as the bridge between cautious institutional investors and the often fragmented, turbulent crypto markets, ensuring a smooth, efficient trading environment.

The Liquidity Challenge for Institutions in Crypto

Entering crypto markets can be daunting for institutions largely because of liquidity concerns. In finance, liquidity is akin to oxygen, you only notice it when it’s missing. A market with poor liquidity turns even modest trades into ordeals, causing wild price swings and high slippage (the difference between expected price and executed price). In high-liquidity markets, even large orders don’t significantly move the price; in thin markets, a relatively small trade can send prices lurching unpredictably. This volatility isn’t just theoretical; for example, on March 12, 2020, Bitcoin famously plunged ~50% in a single day amid a liquidity crisis. Crypto markets can still see swings of 20 to 30% in a single day, a risk that most institutional investors (who often manage client funds or balance sheets) find unacceptable.

For an institution, the stakes are high. Whether they are looking to allocate part of their treasury into Bitcoin, offer crypto trading to customers, or launch a new token, they require market stability and depth. They need to know that when they buy an asset, there will be enough sellers (and vice versa) so that their trade won’t crash the price. They also need tight bid-ask spreads (the gap between buy and sell offers) to ensure fair pricing. In traditional markets, large players take these conditions for granted, but in crypto’s decentralized landscape, liquidity is fragmented across hundreds of exchanges and trading venues. An asset might trade at different prices on different exchanges due to uneven liquidity distribution. This fragmentation means simply “entering crypto” often involves multiple platforms and partners, unlike trading on a single NYSE or NASDAQ.

Market makers solve these challenges by actively providing liquidity and uniting these siloed markets. They ensure that an institution can move in or out of a crypto position without spooking the market. Platforms with significant trading volume and liquidity naturally attract major institutional players looking to enter or expand in crypto, because such platforms promise the stability and efficiency big players expect. On the flip side, if an institution were to enter a low-liquidity environment, it faces higher risks of slippage, potential price manipulation and an overall unpredictable experience, all red flags for corporate treasurers and fund managers. In short, without robust liquidity, many institutions simply won’t take the plunge into crypto.

Market Makers: The Hidden Engines of Stability

Crypto market makers (a subset of liquidity providers) are specialised trading firms that continuously buy and sell assets, bridging the gap between buyers and sellers. Their mission is straightforward: keep the market fluid and orderly. As CryptoBriefing explains, these liquidity providers can be professional trading firms or financial institutions whose main job is to place both buy and sell orders to keep supply and demand balanced, ensuring trading remains smooth whether the market is calm or chaotic. In practice, market makers use algorithmic, high-speed trading systems to maintain active order books on exchanges; quoting prices on both sides (bid and ask) at all times. This activity narrows the bid-ask spread and provides deep “walls” of orders that make markets more resilient to large shocks.

The benefits of this constant liquidity provisioning are significant:

• Price Stability: By always being ready to transact, market makers act as shock absorbers. They prevent sudden gaps in supply or demand that can lead to flash crashes. For instance, even during extreme volatility, a good market maker continues to provide buy orders when everyone else is selling (and vice versa), helping to prevent flash crashes where a sudden lack of buyers causes prices to plummet. The result is a more predictable, stable market structure even in turbulent times.
• Reduced Slippage and Tighter Spreads: When market makers populate an exchange’s order book with ample orders, large trades can be executed near the current market price without drastic slippage. Good liquidity means you can buy or sell your crypto quickly at a price you expect, lowering transaction costs and avoiding a big order moving the price against you. For institutions executing multi-million-dollar orders, this precision is crucial and it can mean the difference between a profitable position and a costly entry price.
• Fair and Efficient Price Discovery: With many active participants (including automated ones), the market price of an asset more accurately reflects its true supply and demand. Liquidity providers trade across multiple venues, arbitrage away price discrepancies, so an institution doesn’t have to worry that they’re paying 5% more on Exchange A than they would on Exchange B. The market maker’s activity ensures consistent pricing across the fragmented crypto landscape, fostering trust that the prices are fair and not easily manipulated.
• Confidence for All Participants: A liquid market builds trust. Traders, from small retail investors to giant institutions, prefer venues where they know they can enter or exit positions whenever needed. When trades execute smoothly with minimal friction, it instils confidence in the platform and the asset, encouraging even more participation. In contrast, if an institution experiences difficulty selling an asset (getting “stuck” in a position due to no buyers), it will erode its trust in the entire crypto venture. Reliable liquidity is thus a virtuous cycle: it attracts more trading activity, which in turn further improves liquidity and market depth.

It’s worth noting that crypto liquidity can come from both centralised market makers (like professional firms on exchanges) and decentralised means (like automated market maker pools in DeFi). Many institutions will prefer partnering with established centralised liquidity providers for large-scale needs, as these firms offer service-level assurances and sophisticated risk management. Regardless of method, the outcome sought is the same: a stable, efficient market that meets institutional standards.

Why Institutions Rely on Liquidity Providers: Key Reasons

Considering the above, we can summarise a few key reasons institutions need market makers and liquidity providers when entering the crypto arena:

• Handling Large Trades with Minimal Impact: Institutions often trade in high volumes. Without sufficient liquidity, a single large buy or sell could dramatically shift the market price. Market makers ensure deep order books so that even multi-million dollar orders can be absorbed with minimal price impact. This allows institutions to execute strategies confidently, knowing they won’t themselves cause a price spike or crash during entry or exit.
• Market Stability and Risk Mitigation: Institutional investors are typically risk-averse and operate under strict risk management rules. High liquidity dampens crypto’s notorious volatility, by continuously balancing supply and demand, market makers reduce the frequency and magnitude of price swings. This increased stability “can encourage more cautious institutional investors to explore crypto with greater confidence”. Essentially, liquidity provision turns crypto from a wild rollercoaster into a more manageable ride suitable for conservative investors.
• Assured Price Fairness and Reduced Manipulation: Thin markets are prone to manipulation; a bad actor can more easily move prices in an illiquid market. Institutions demand market integrity. By tightening spreads and boosting volume, liquidity providers make it harder for any one player to manipulate prices. Exchanges with strong liquidity also tend to have tighter surveillance and more credible price discovery, all of which reassure institutional entrants that they are operating on a level playing field.
• Cross-Exchange Liquidity and Global Reach: Many institutions in emerging markets face the challenge of local currency pairs or local exchanges with low liquidity. Global market makers can connect these local markets to broader liquidity pools. For example, if a bank in an emerging economy wants to offer crypto to clients, a liquidity provider can ensure that even the local crypto/fiat pairs have ample liquidity by spreading activity across multiple venues. This bridging of markets means institutions get the benefit of a global liquidity network, rather than being siloed in a potentially shallow local market.
• Regulatory Compliance and Professionalism: While not a direct market factor, it’s important: institutions are more comfortable working with service providers that operate to high professional standards and can adapt to regulatory requirements. Leading market makers often implement robust compliance (KYC/AML where applicable), security measures and transparency in their operations. As crypto regulations tighten, these firms adjust, which in turn gives institutions a compliant pathway into crypto trading. In short, a reputable market maker offers not just liquidity, but also credibility, showing regulators and stakeholders that the institution’s crypto activities are supported by seasoned experts.

Examples: Market Makers Enabling Institutional Entry

Real-world examples abound of how liquidity provision helps institutions (and institutional-like Web2 players) enter crypto successfully, especially in emerging markets, where user demand is high but market structure can be fragmented. Chainalysis’ adoption studies consistently show outsize activity across Central & South Asia, parts of Africa, and Southeast Asia, think India, Vietnam, the Philippines, Nigeria, underscoring why robust market infrastructure and dependable liquidity are prerequisites for institutional participation.

Payments & fintech (global): PayPal, Visa.
When PayPal launched PYUSD and expanded crypto features, it needed consistent two-way markets across multiple venues and fiat ramps so that consumer flows (buy/sell/checkout) clear at tight spreads with minimal slippage. That means standing liquidity in PYUSD/USD, BTC/USD, ETH/USD pairs, plus the ability to recycle inventory quickly during demand spikes. Visa’s USDC settlement pilot similarly depends on stablecoin liquidity across chains and fiat corridors so acquirers can net, settle and unwind positions without price gaps. In both cases, the business use case (payments/settlement) only works if liquidity partners keep spreads tight, depth reliable, and cross-venue prices aligned.

Regulated banks & exchanges (Asia): DBS.
When DBS stood up its institutional exchange in Singapore, it wasn’t just listing assets, it was creating a venue where accredited and institutional clients expect institutional market quality: continuous quotes, resilient order books and fair price discovery in local-currency pairs. That requires systematic quoting, inventory recycling, and hedging across regional venues so that large block orders don’t distort prices and post-trade risk is controlled.

Neobanks & wallets (LATAM): Nubank, Mercado Pago.
Consumer apps in Brazil, Mexico and Chile that added crypto buying/selling faced a retail flow that is bursty (paydays, promos, news events). To keep UX consistent, they rely on external liquidity to (1) pre-seed depth in BRL/MXN/CLP pairs, (2) route flow to the best venue in real time, and (3) hedge net exposure so spreads stay stable even when flows are one-sided. As these platforms expanded coin coverage, the underlying liquidity work; quoting, routing, inventory and basis hedging, scaled alongside.

Super-apps & local exchanges (SEA): GCash / PDAX.
In the Philippines, consumer apps offering crypto (e.g., GCrypto integrated with PDAX rails) need dependable PHP pairs and fast fiat settlement. The liquidity “plumbing” includes (a) steady quoting in thin local hours (b) cross-listing/venue aggregation so PHP books track global prices, and (c) circuit-breaker logic for volatile listings. That’s how a retail purchase in a super-app executes instantly at a fair price, even if global liquidity is concentrated elsewhere.

Cross-border & remittances (Africa): stablecoin rails.
Across sub-Saharan Africa, stablecoins have become a major share of crypto activity. For corridors like NGN↔USDC, remittance providers and exchanges need robust stablecoin to fiat liquidity so retail conversions don’t suffer wide slippage when volumes surge (e.g., salary days or FX shocks). Liquidity providers keep the spread behaviour predictable and synchronise prices across P2P and exchange venues, which in turn drives trust and repeat usage.

Importantly, it’s not just crypto-native businesses that benefit. Traditional Web2 institutions entering Web3 also rely on market makers. Suppose a fintech payments company or a neo-bank in an emerging economy wants to offer crypto trading to its customers. Rather than building an entire trading desk from scratch, they can integrate with an exchange or OTC desk supported by liquidity providers. The market maker’s role behind the scenes is to ensure that when the fintech’s customers buy Bitcoin or stablecoins, they get the best execution. The users see tight pricing and fast trades, while the fintech avoids the nightmare of having customer orders stuck or slipped due to illiquidity. In essence, the liquidity partner absorbs the complexity, aggregating supply and demand from various sources – so the institution can focus on its customers and core business.

It’s clear that in many emerging markets scenarios, “liquidity drives real adoption”. When people and companies see that a crypto market is liquid and robust, they are far more likely to use it. Remittances, savings, payments; all these use cases flourish when conversion in and out of crypto is frictionless. Market makers thus quietly power the real-world use of crypto by ensuring the gears of trading keep turning smoothly in the background.

Conclusion

For institutions eyeing the leap into crypto, having a trusted market maker in their corner is not a luxury, it’s a necessity. Professional market makers and liquidity providers bring the depth, stability and efficiency that institutions are accustomed to in traditional markets, thereby translating confidence into the crypto context. They tame the wild price swings, ensure that large investments won’t sink the ship, and keep the playing field fair and orderly. This service is especially critical in emerging markets, where the next billions of crypto users are coming from, and where local institutions are beginning to embrace digital assets amidst economic and currency challenges.

Further Readings

Chainalysis (2025) – Global Crypto Adoption Index (chainalysis.com) (Shows adoption growth led by emerging markets such as India, Vietnam, and Nigeria; underscores why liquidity and infrastructure are essential for institutional entry.)

PayPal Newsroom (2025) – PYUSD on Stellar: Plans to Use Stellar for New Use Cases (newsroom.paypal-corp.com) (Explains how a Web2 giant is expanding stablecoin functionality, relying on liquidity for cross-border and real-time settlement.)

DBS Bank (2023) – The Launch and Growth of DDEx (DBS Digital Exchange) (fintechnews.sg) (Illustrates how Singapore’s largest bank built an institutional-grade exchange, integrating custody and tokenization with robust liquidity provision.)

Crowdfund Insider (2025) – Crypto Adoption Surges in 2025, Led by Emerging Markets and Stablecoins (crowdfundinsider.com) (Analyzes adoption trends in lower- and middle-income countries, highlighting stablecoins and remittances as key institutional entry points.)

EY (2025) – Institutional Investor Digital Assets Survey (ey.com) (Provides data on institutional allocations, highlighting liquidity, regulation, and infrastructure as the top concerns for larger capital deployment into crypto.)

Kaiko Research (2025) – The State of LATAM Crypto Markets (research.kaiko.com) (Provides market data on volumes, spreads, and asset trends, showing where liquidity is concentrated and how institutions are engaging in Latin America.)