Crypto market makers struggle as costs rise, investors shy away

Market making in digital tokens used to be a font of outsized profitability. The picture today is very different as costs jump and investors avoid a crypto sector scarred by a $2 trillion rout.

The price crash led to bankruptcies like that of the FTX exchange, leaving a mountain of coins stranded on collapsed platforms and stoking fears of ongoing upheaval. Market makers have stepped up efforts to mitigate the risk of being ensnared by future turmoil, a shift they say erodes margins.

Liquidity providers Auros, GSR Markets Ltd. and Wintermute Trading Ltd. highlighted trends such as diversifying activity across more exchanges. They are also increasingly storing digital-asset inventories away from trading venues and using them as collateral to borrow tokens to deploy on crypto platforms.