Market Making On Crypto Venues

A crypto market maker does the same basic job as a market maker anywhere: post two-sided quotes, capture the spread, and manage the inventory that accumulates as fills come in unevenly. The core risks are familiar, adverse selection from better-informed counterparties, and inventory risk from carrying an unwanted position, but several features of crypto markets make the job harder to run safely.

Trading never stops, so a market maker's risk book is live at 3am on a holiday exactly as it is at 10am on a Tuesday, with none of the closing-auction or overnight-gap protections that traditional venues build in. Liquidity is fragmented across dozens of exchanges with no consolidated tape, so a fair "reference price" has to be built from multiple feeds rather than read off a single source of truth, and prices can genuinely diverge across venues during stress. Exchanges themselves carry counterparty and custody risk that a stock exchange doesn't, a market maker's collateral can be at risk if the venue itself fails, not just if a trading counterparty defaults.

Firms that do this at scale run automated kill switches on funding-rate spikes, exchange withdrawal delays, and cross-venue price divergence, because a human reacting on a normal trading-desk timescale is often too slow for a market that never closes.