INTRODUCTION
Crypto futures, perpetual swaps and options now attract more trading volume than the spot market itself. None of that would work without market makers. They stand in the order book 24/7, quote buy-and-sell prices, absorb large orders and carry the risks of inventory, margin and volatility. The collapse of major exchanges, the regulatory squeeze in 2023 and the rise of DeFi have forced market makers to rethink their playbook. This article explains—without developer jargon—how they earn money today, keep risk in check and where the industry is heading next.
WHY DERIVATIVES LIQUIDITY MATTERS
- A deep order book stops prices from crashing when a whale clicks “sell”.
- Funds can hedge or close a position quickly, without painful slippage.
- Healthy liquidity keeps the market predictable. When big liquidity providers pull back, spreads widen, volatility jumps and even modest orders move the price too far.
TWO VENUES, TWO RULE SETS
Centralised exchanges work with a classic order book—trades match in milliseconds but a technical failure or mass liquidations can drain the book in seconds.
Decentralised venues rely on either automated-market-maker pools or on-chain order books. Makers pay gas, wait for block finality and must fend off MEV bots. Different speed and costs mean different risk maths and different software.
HOW A MARKET MAKER EARNS IN DERIVATIVES
1. Delta-neutral quotes
On a CEX a bot keeps symmetric bids and asks around a fair price and hedges any imbalance instantly with spot or futures. On a DEX a liquidity provider sets a price band; a narrow band earns higher fees but risks being left on the wrong side of the market.
2. Funding-rate plays
In a perpetual swap long and short traders pay each other every few hours. When longs are overcrowded the rate turns positive—shorts get paid. A maker can sell the perp, buy spot and live off the funding payment instead of the price move.
3. Trading volatility via options
Option makers sell or buy implied volatility, hedge with spot or futures and manage the Greeks. Done right, premium income flows even if the underlying coin goes sideways.
FOUR PILLARS OF RISK MANAGEMENT
- Widen the spread when the market panics but stay in the book: you still earn and calm prices.
- Use isolated-margin pools so one toxic asset cannot drag the whole portfolio into liquidation.
- Keep a disaster plan: who closes positions if an exchange is down for thirty minutes?
- Track the full economics of every trade—spread earned minus fees, gas and future funding payments.
WHAT WE LEARNED IN 2024-25
- Active liquidity providers who rebalance ranges in AMM pools earn far more than passive ones.
- Funding rates steer capital: makers chase the venue with the juiciest payment.
- Liquidity equals stability: when large makers left the US market, depth in many altcoins fell almost 20 percent and bitcoin’s intraday swings tripled.
- Traditional firms are coming back—expect tighter spreads and stricter transparency.
UNANSWERED QUESTIONS
- Do delta-neutral strategies stay profitable over many years? We still lack public track records.
- Will “just-in-time” liquidity bots on DEXs become a norm or face protocol roadblocks?
- Can CeFi and DeFi liquidity ever merge into a single, seamless order book?
CONCLUSION
Modern market making is nonstop fine-tuning of algorithms, real-time capital shifts and cold-blooded decisions when everyone else freezes. The edge belongs to those who adapt faster than the market changes.
WHAT YOU CAN DO TODAY
- Check how much the funding rate eats—or adds to—your spread.
- Add isolated risk limits so one coin’s crash cannot sink the boat.
- Experiment with dynamic range rebalancing in an AMM pool—start small, watch the fee flow.
- Update the emergency runbook: who presses the red button if the exchange goes dark?
In derivatives trading it is not the fastest who wins, but the most adaptable. Are you ready for the next turn?
