Market-Making Strategies That Survived the 2022 - 2023 Crypto Bloodbath And What's the Way Forward!
Anyone who stuck around the crypto markets between 2022 and 2023 will tell you: it wasn’t pretty. We saw some of the worst sell-offs since Bitcoin’s early days, major players going up in smoke, and confidence levels so low you could practically hear the echo in Telegram groups.
Yet, if you looked closely, you’d notice some market makers not only stayed in the game, but they managed to come out even sharper. What did they know that others didn’t?
Let’s break down what actually worked, what absolutely didn’t, and what these battle-hardened liquidity warriors are cooking up for the future.
Why Market Makers Matter More Than We Think
Most people outside trading circles don’t really think about market makers. We tend to focus on flashy headlines: “Coin X pumps 100%” or “Project Y rug-pulls its community.” But behind every smooth trade you make, there’s usually a market maker working tirelessly to keep the order book from turning into a ghost town.
Market makers provide bids and asks constantly, so no matter when you decide to buy or sell, you don’t get stuck waiting hours (or days) for someone to take the other side. Without them, liquidity would vanish, and prices would become erratic more so than they already are in crypto.
During the 2022 crash, we saw a real-life stress test. A lot of big players, including retail investors and even so-called “smart” funds, exited en masse. But some market makers hung around, supporting pairs and making sure traders had someone to transact with.
It wasn’t just a noble gesture. They also captured incentives, earned spreads, and positioned themselves to gain trust for future partnerships. That’s the often-unseen grind that makes or breaks firms during down markets.
The Painful Reality of 2022 - 2023: What Went Wrong?
The meltdown wasn’t just another bear cycle. It was a straight-up demolition derby.
The Terra collapse alone vaporized tens of billions. Then came Three Arrows Capital, Celsius, Voyager, the list reads like a tragic poem. And let’s not forget the FTX implosion, which hit confidence so hard that even Bitcoin maximalists started questioning exchanges they’d trusted for years.
Liquidity dried up. Even top coins saw spreads widen dramatically. Meme coins and small-cap tokens? Forget it. You could practically watch them evaporate in real time.
For market makers, these weren’t just numbers on a chart. Every price drop meant inventory was losing value, spreads were harder to maintain, and any unhedged exposure felt like holding a hot potato. Many desks simply turned off the lights and sat out the storm. Others tried to “buy the dip” and got wiped out.
A handful, though, didn’t flinch and that’s where it gets interesting.
Arbitrage Across Exchanges: The Old Reliable
While the whole market was melting, cross-exchange arbitrage was one of the few consistent money-makers.
Here’s the basic idea: when prices on Exchange A and Exchange B diverge (which happens more often during high volatility), market makers jump in and buy on the cheaper exchange and sell on the more expensive one, locking in a risk-free (or almost risk-free) profit.
It sounds easy enough, but try moving size at warp speed when the networks are congested, exchanges are throttling withdrawals, and gas fees are spiking. That’s where having solid tech and well-oiled operational processes came into play.
Some firms even set up regional liquidity pools to reduce latency, physically locating servers closer to major exchanges to cut down on those crucial milliseconds.
During the downturn, these price gaps were like gold nuggets in a river: hard to grab, but worth it. Those with the nerve (and the bots) to execute cleanly came out with gains while most were licking their wounds.
The Delta-Neutral Lifeline
While everyone else was either chasing dips or panic-selling, delta-neutral strategies quietly kept certain desks in the green.
Delta-neutral is just a fancy way of saying “I don’t care where the price moves, I’m covered.” You take offsetting positions so your net exposure to price swings is basically zero. For example, if you’re long spot Bitcoin, you might short Bitcoin futures in an equal amount.
During 2022, prices were crashing across the board. Anyone holding large unhedged positions had a really bad time. Meanwhile, delta-neutral setups let market makers focus on spreads and fees rather than whether Bitcoin was going to $12k or $100k.
It isn’t glamorous, and you won’t get rich overnight. But you also don’t get wiped out overnight. That slow-and-steady approach, focusing on earning small, consistent returns through providing liquidity and collecting fees, turned out to be a lifesaver.
Inventory Control: Avoiding the Bag Holder Curse
One underrated secret weapon? Ruthless inventory management.
Imagine holding a big chunk of some trendy token that just lost 90% of its value in a week. Painful, right? Smart market makers saw this coming and started limiting their exposure to exotic tokens early on.
They set caps, constantly monitored volatility, and reduced positions in pairs that showed signs of going illiquid. Some firms even used automated systems to adjust their token holdings based on order book depth and real-time volatility spikes.
In practice, it meant passing on tempting incentives from projects that wanted them to make a coin “look liquid” a tough choice in the moment, but the right one for survival.
By staying nimble, they avoided being left holding bags that no one wanted, and they kept cash and stablecoins ready to move fast when opportunities arose.
Playing Nice With Exchanges: Partnerships That Paid Off
While some market makers tried to brute-force profits, the smarter ones focused on relationships.
Most exchanges offer rebates or even direct incentives to market makers who provide consistent liquidity. During the downturn, these arrangements helped firms survive by keeping cash flow steady even when spreads were thin.
Some desks took this a step further and negotiated custom terms lower fees, early access to new listings, or even co-branded liquidity initiatives.
Being in the good books with exchanges also meant first dibs on new opportunities, like becoming the primary liquidity provider for a new token launch or participating in strategic liquidity bootstrapping events.
These partnerships proved that sometimes, playing the long game and building trust beats chasing short-term profits.
Lessons From Those Who Didn’t Make It
Of course, not every market maker saw the light at the end of the tunnel.
Some were too optimistic, betting big on rebounds that never came. Others leaned too heavily into leverage, thinking they’d make back losses twice as fast only to blow up spectacularly.
There were also those who didn’t respect risk management and got stuck with illiquid tokens they couldn’t unload even at a steep discount. In crypto, when liquidity vanishes, it vanishes completely.
In the end, these failures became cautionary tales. They reminded the survivors of one fundamental truth: in this space, arrogance is often punished swiftly and brutally.
Looking Ahead: The Next Era of Market Making
So, where do we go from here?
First off, expect a lot more regulation. Post-FTX, regulators are under pressure to tighten the screws, which will make compliance more costly but could also pave the way for bigger institutional players. That means market makers will need to invest in better reporting and more transparent operations.
Next, DeFi is maturing. More market makers are shifting on-chain to provide liquidity in AMMs and hybrid models. This calls for different strategies, like managing impermanent loss and providing concentrated liquidity.
Tech will keep evolving too. We’re talking smarter bots, machine learning-based strategies, and increasingly complex execution algorithms. The firms that succeed will be those that combine tech chops with a strong understanding of human psychology in crypto markets.
Finally, reputation is going to matter more. After all the frauds and failures, projects and exchanges are desperate for reliable partners who don’t disappear when the market turns ugly.
What New Market Makers Should Take to Heart
If you’re thinking of jumping into market making now, here’s some free advice:
Don’t bet the farm. Crypto can go from “party” to “funeral” overnight.
Focus on relationships as much as numbers. Building trust with exchanges, token projects, and infrastructure partners will help you weather storms.
And most importantly, stay flexible. What worked in 2022 may not work in 2025. You’ll need to keep evolving, keep learning, and stay humble.
Conclusion: Only the Nimble Survive
The 2022 - 2023 crash was a brutal test, but it also forged a new generation of market makers who are sharper, leaner, and a whole lot more cautious.
If they can keep adapting and continue to innovate, they’ll play a central role in shaping the next wave of crypto growth whether it’s on centralized exchanges, on-chain AMMs, or wherever this weird, wonderful industry heads next.
Looking forward to connecting with renowned and experienced market makers, connect with the 3AruLabs team:
Website: www.3arulabs.com
Twitter: @3Aru_Labs
Email: partnerships@3arulabs.com