Liquidity Provider vs. Market Maker: What Is the Difference?

Published 12 January 2024
Liquidity Provider vs. Market Maker: What Is the Difference?


In the fast-paced crypto realm, liquidity providers and market makers are pivotal in shaping market dynamics. This article explores these entities’ nuanced differences, interactions, and significance in the crypto landscape. Focusing on the WhiteBIT crypto exchange‘s approach, we navigate the complexities of liquidity provision and market making, shedding light on their impact on the ever-evolving world of digital asset trading. Join us as we unravel the intricacies of market maker vs. exchange and their influence on the crypto market.

What is a Liquidity Provider?

Liquidity is a crucial factor influencing market efficiency and price stability. A liquidity provider is an entity, often institutional, that plays a vital role in maintaining liquidity on a cryptocurrency exchange. They facilitate the seamless execution of trades by offering a continuous stream of buy and sell orders, reducing the impact of large trades on crypto prices.

Liquidity provision involves injecting assets into the market, ensuring traders can buy or sell assets without experiencing significant price slippage. These providers can be individuals, institutional investors, or even specialized firms that allocate a portion of their assets to the exchange order book.

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What is a Market Maker?

A market maker participates in the financial markets, specifically on cryptocurrency exchanges, and quotes buying and selling prices for digital assets. Market makers aim to profit from the spread — the difference between these two prices, by continuously updating bid and ask prices. This continuous quoting helps create a more liquid market by narrowing the bid-ask spread and encouraging trading activity.

Market makers operate on various tiers, with tier 1 representing the most competitive and active participants. These entities play a crucial role in bridging the gap between buyers and sellers, ensuring a smooth flow of trades and reducing price volatility.

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Comparing Market Maker vs. Liquidity Provider

While the terms “liquidity provider” and “market maker” are often used interchangeably, their roles have subtle differences. A market maker primarily focuses on profiting from the bid-ask spread and may adjust their prices based on market conditions. On the other hand, a crypto exchange liquidity provider emphasizes maintaining market liquidity by consistently supplying assets to the order book, irrespective of immediate profit motives.

All market makers are liquidity providers, but not all liquidity providers function as market makers. Liquidity providers can include entities that contribute assets to the market without actively engaging in spread-based trading strategies.

How Liquidity Providers and Market Makers Interact

The interaction between liquidity providers and market makers is symbiotic, contributing to a healthy and efficient market. Market makers benefit from liquidity providers as they ensure a constant flow of assets, enabling them to maintain tight bid-ask spreads. In return, liquidity providers rely on market makers to enhance the overall liquidity of the market, creating an environment conducive to seamless trading.

Crypto exchanges often incentivize market makers and liquidity providers through various fee structures and rewards programs. These incentives encourage their participation, benefiting traders and fostering a more vibrant trading ecosystem.

WhiteBIT Liquidity Providing and Market Making

WhiteBIT crypto exchange, as an institutional cryptocurrency platform, recognizes the significance of liquidity providers, market makers, and brokers in ensuring a robust trading environment. The exchange collaborates with tier 1 and tier 2 liquidity providers and market makers to enhance liquidity and provide a seamless trading experience for its users.

WhiteBIT’s commitment to liquidity provisioning involves creating an ecosystem where market makers and liquidity providers coexist, contributing to the overall market depth and stability. The exchange leverages advanced technologies to attract and retain top-tier liquidity providers, fostering an environment that benefits traders and investors alike.


Understanding the distinction between liquidity providers and market makers is essential for crypto market participants. While both entities contribute to the liquidity of the market, their specific roles and motivations differ. The synergy between market makers and liquidity providers on platforms like WhiteBIT exemplifies the collaborative efforts required to create a thriving and efficient crypto market. As the crypto space continues to mature, the dynamics between liquidity providers and market makers will play an increasingly pivotal role in shaping the future of digital asset trading.