What Is Crypto Market Making and How Does It Work in 2026?

Crypto markets depend on liquidity at two levels. A token project needs its token to trade smoothly once it is listed, and an exchange needs every pair on its platform to offer prices that users trust. Crypto market making supports both, through continuous buy and sell orders that keep trading available throughout the day.

This guide explains how market making works, why liquidity matters for token projects and exchanges and what each should look for when working with a market maker. It focuses on centralised exchange order books, where buyers and sellers post orders at specific prices.

What is crypto market making?

Crypto market making is the practice of continuously placing buy and sell orders so other participants always have someone to trade with. A market maker commits its own capital to those orders, manages the tokens and cash it accumulates and updates its prices as conditions change.

An order book holds bids, which are offers to buy, and asks, which are offers to sell. A market maker typically keeps orders on both sides. Picture a token trading around $1.00. A market maker might offer to buy 5,000 tokens at $0.999 and sell 5,000 tokens at $1.001. A seller can trade against the bid right away, and a buyer can trade against the ask, up to the quantity shown. All figures in this article are hypothetical and exclude trading fees.

Bid-ask spread

The bid-ask spread is the gap between the highest bid and the lowest ask. In the example, the spread is $0.002, which equals 0.20% or 20 basis points of the $1.00 midpoint. One basis point is 0.01%.

A tighter spread lowers the cost of trading immediately, which attracts active traders to a token and to the exchange where it trades. Spreads also reflect the cost of providing liquidity. When volatility rises, hedging becomes expensive or exchange connections become unreliable, quoting carries more risk and spreads usually widen. Market makers may earn from spread capture, service fees or exchange incentives, while inventory losses, hedging costs and fees reduce the final result.

Order-book depth

Order-book depth is the quantity available to trade within a set distance from the current price, for example within 1% or 2% of the midpoint. A deep book can absorb larger orders with smaller price moves.

The spread alone can be misleading. Suppose a book offers 2,000 tokens at $1.001 and the next 8,000 at $1.010. Buying all 10,000 tokens costs $10,082, an average price of $1.0082. That buyer pays about 0.72% more than the best ask, even though the quoted spread was only 0.20%.

Depth also moves differently from one asset to another. A 2026 digital asset snapshot from Kaiko reported BTC depth rising 9.3% against its seven-day average while SOL depth fell 4.7% over the same period. Projects and exchanges should therefore track depth on their own pairs and venues instead of relying on broad market trends.

Market making for token projects

For a token project, market making usually starts around the listing. Holders, new buyers and exchanges all need the ability to trade a reasonable amount at a fair price whenever they choose.

Liquidity builds confidence. Traders are more willing to hold a token they know they can exit at a fair price, and institutional participants need to execute larger orders without moving the market against themselves. A token that handles a $500 trade comfortably may still show heavy slippage on a $25,000 order, and that difference shapes who is willing to participate.

Thin liquidity also affects listings. Exchanges monitor trading activity on listed pairs, and tokens that consistently fall short of their requirements risk being placed under review or delisted. A token market maker typically quotes the project's main pairs across several venues and supports the market through launches, token unlocks and volatile periods.

Market making for exchanges

Exchanges face the same challenge across their entire product range. A venue may list hundreds of spot pairs, and each one needs competitive prices for users to stay. A new exchange starts with empty order books, while an established one needs liquidity every time it adds a pair or launches a new quote currency.

Exchange market making covers this need. Market makers quote many pairs at once and keep prices on the venue aligned with the wider market. If BTC rises 1% on other exchanges within a minute, the market maker updates its orders so users on that venue see a comparable price.

Many exchanges run formal market-maker programmes. A hypothetical programme might require two-sided quotes within 50 basis points of the midpoint, with at least $5,000 on each side, for 90% of trading hours. In return, the market maker may receive lower fees or maker rebates. Clear obligations help an exchange measure liquidity quality across its listings and identify pairs that need attention.

For exchanges, connectivity is part of the offer. Stable APIs, sensible rate limits, reliable market data and fast order acknowledgements all affect how tightly market makers can quote. Gravity Team's article on how smart execution handles fragmented crypto liquidity explores how liquidity spread across venues affects execution for traders.

How market makers keep liquidity available

Every fill changes a market maker's inventory. Suppose it starts with 100,000 tokens and $100,000 in quote currency, and holders keep selling. The market maker ends up with more tokens and less cash. If the price then falls, those tokens lose value, and the remaining cash limits how much more selling it can absorb.

To manage that exposure, a market maker may reduce bid sizes, lower its prices slightly to attract buyers or rebalance between exchanges. It may also hedge with a derivative where one exists, although smaller tokens often have few hedging options and margin requirements can rise sharply during volatility. Capital placement matters as well, since funds held on one exchange may be unavailable elsewhere while transfers or withdrawal checks are pending.

Risk controls protect both the market maker and the market. These cover position limits, maximum order sizes, exchange exposure and loss thresholds, plus safeguards against stale price feeds, rejected orders and dropped connections. If a reference feed freezes, a stale-data control can cancel orders or pause quoting until reliable data returns. The ESMA assessment of EU financial markets entering 2026 warned of sudden market corrections and operational disruption, which makes testing these controls under stressed conditions an important part of any arrangement.

Tradability and token price

Market making improves how a token trades, and price direction is driven by other forces. A token can keep a narrow spread and solid depth while its price declines, as buyers and sellers continue trading efficiently at lower levels. Demand, circulating supply, unlock schedules, project developments and wider market conditions decide where the price goes.

The same applies on exchanges. A market maker can keep a pair liquid, while user growth and trading activity depend on the venue's product, listings and reputation.

What to measure

The most useful conversations are built around measurable terms. A project should define the order sizes its users need and the spread and depth it expects on each venue. An exchange should define programme obligations per pair and how compliance will be reported.

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These figures are most informative when reviewed across calm and volatile periods, since daily averages can hide short intervals when conditions deteriorate. Trading volume adds context, although past turnover says little about how much liquidity is available for the next order.

Closing thoughts

Tight spreads and deep order books shape how a token is experienced by everyone who trades it and how users judge the exchange they trade on. Market making provides those conditions through continuous two-sided quoting, careful inventory management and disciplined risk controls. Token projects and exchanges that set clear liquidity targets and measurement methods early are better placed to support their markets through launches, listings and changing conditions.

Glossary

Bid: An offer to buy an asset at a specified price.

Ask: An offer to sell an asset at a specified price.

Midpoint: The average of the best bid and best ask.

Basis point: One hundredth of a percentage point, or 0.01%.

Order-book depth: The order quantity available within a specified price band.

Slippage: The difference between the expected price and the actual execution price.

Inventory: Tokens and quote currency a market maker holds to support trading.

Maker rebate: A fee credit an exchange pays for orders that add liquidity to the book.

Hedging: Taking an offsetting position to reduce an identified exposure.