The Frustration That Started This
A post that circulated on the r/CryptoCurrency subreddit captured something a lot of retail traders feel:
"Are market makers really this stupid? Do they think they will make more money just liquidating people? Because these people won't come back. Once they get liquidated it's over for the majority of them. If I was a market maker I would be much happier making the price go up and dumping on buyers than just liquidating left and right with no end in sight. Because once most people are out, they won't come back."
This post is not wrong to be angry. The pattern it describes — price moving in ways that seem designed to hurt retail traders right before a reversal — is a real and observable phenomenon in crypto markets. The frustration is valid. But the entity it is blaming — "market makers" — is largely the wrong target. And understanding who the right target actually is changes how you think about crypto markets entirely.
The Core Confusion: Three Things Everyone Calls a "Market Maker"
The term "market maker" is used loosely to describe at least three structurally different types of entities. When they get collapsed into a single label, the conversation becomes confused — and the blame gets misallocated.
| Who People Mean | What They Actually Are | Do They Run Liquidations? |
|---|---|---|
| "Market maker liquidating me" | The exchange's perpetuals engine — Binance, Bybit, OKX internally | Yes — this is the exchange itself |
| "Market maker hunting my stops" | Often the exchange's proprietary desk or large speculative traders | No formal role — operates as a trader |
| Actual market maker | An independent liquidity firm (Wintermute, GSR, PlaceholderMM) managing order books on behalf of token projects | No — earns spread from order book activity |
The entity that runs liquidations is the exchange. Not a third-party market maker. When your leveraged position is liquidated on Binance, Binance's internal liquidation engine handles it — using Binance's insurance fund and internal margining systems. An external market making firm like Wintermute or PlaceholderMM has no access to or involvement in that process. They are not in the room.
How Liquidations Actually Work
When you open a leveraged perpetuals position on a CEX, you are not trading with a market maker. You are trading against other traders through a system the exchange operates. The exchange is the counterparty to your position through its perpetuals engine, and it manages the risk of that book internally.
When your margin falls below the maintenance threshold — because price moved against your position — the exchange's liquidation engine automatically takes over your position and closes it, typically at the liquidation price or worse. The exchange's insurance fund absorbs any residual loss. This entire process happens between you and the exchange. No external market maker is involved, informed, or incentivised by your liquidation.
What Market Makers Actually Do — and How They Make Money
A spot market maker's business model is about as far from "liquidating traders" as it is possible to get. Understanding the actual revenue model makes the confusion easy to resolve.
A market maker simultaneously places buy orders and sell orders on an exchange order book. The buy orders are priced slightly below the current market price; the sell orders are priced slightly above. The difference between those two prices is the spread. When other traders execute against those orders — buying at the ask or selling at the bid — the market maker captures a small portion of that spread as revenue.
That is the entire model. Buy low, sell high, in very small increments, very frequently. The market maker's income is proportional to trading volume and inversely proportional to spread width. More volume and tighter spreads on a healthy order book means more revenue. Less volume and wider spreads means less revenue.
Market makers want price to crash so they can liquidate traders and profit from the chaos.
Market makers need consistent, healthy two-sided trading volume to earn their spread. Price crashes reduce volume, widen spreads, and increase inventory risk — all of which hurt a market maker's business. Their financial interest is in a stable, active market, not a liquidation event.
Market makers are running stop hunts to trigger retail liquidations before reversing price.
Professional spot market makers adjust spreads and depth in response to order flow — which can sometimes cause short-term price moves. But this is inventory management, not deliberate stop hunting. The entities most commonly associated with coordinated stop hunting are large speculative traders and, in some cases, exchange proprietary desks — not external liquidity providers.
Once traders are liquidated, they never come back — so market makers are destroying their own business.
The Reddit post is making a business logic argument against the entity it thinks caused the liquidations. That argument is actually correct — but it is being made against the wrong party. Exchanges that allow their perpetuals products to systematically liquidate retail traders do face long-term user retention problems. That is a real tension in the exchange business model, not in the market maker's.
Where the Anger Actually Belongs
None of this is to say that everything in crypto markets is clean. There are real conflicts of interest worth being angry about — they are just located differently than the Reddit post assumes.
Exchange proprietary desks. Some of the largest crypto exchanges operate proprietary trading desks alongside their retail trading platforms. These desks can observe aggregate order flow — including where stop orders are clustered — in ways that external traders cannot. The conflict of interest this creates is structural and has been the subject of regulatory scrutiny in both traditional finance and crypto markets. This is where the "stop hunting" concern has the most legitimate basis.
Multi-mandate market makers. Some firms that describe themselves as market makers also operate venture capital funds, investment books, and proprietary trading strategies. When the same firm is managing your token's order book and holds investment positions in your sector, the potential for conflicts of interest is real — even if it is more subtle than the Reddit post imagines. For a detailed breakdown of how this plays out, see PlaceholderMM vs DWF Labs: Mandate Conflicts and What They Cost You.
Opaque perpetuals mechanics. The liquidation cascade problem — where large liquidation events trigger further price moves that liquidate more positions — is a real structural feature of high-leverage perpetuals markets. The mechanics of how liquidation engines interact with order books during stressed conditions are genuinely worth scrutinising. But that scrutiny should be directed at the exchange's product design, not at external market makers.
"The Reddit post is making a correct business logic argument. Liquidating your own users until they stop coming back is not a sustainable strategy. It is just aimed at the wrong entity. Exchanges face that tension. Market makers do not."
PlaceholderMM — EducationWhy Market Makers Actually Want Healthy Markets
The Reddit post's core business logic — that systematically wiping out retail traders destroys long-term market health — is correct. It just does not apply to market makers. Here is why the incentive structure runs the other way for actual liquidity providers.
A market maker's revenue is directly tied to trading volume. More active traders in the market means more order flow, more spread capture, and more revenue. A market where retail participation has collapsed — because traders were liquidated and never came back — is a market where a spot market maker earns significantly less. Their financial interest is in a growing, active, diverse trading community, not a shrinking one.
For token-focused market makers specifically, the alignment goes further. In a loan-only deal structure where the market maker holds a token loan and profits from the token's appreciation, the firm has a direct financial interest in the token's price being healthy over time. A token whose community has been wiped out by cascading liquidations on a high-leverage perpetuals product is a token with a damaged narrative and reduced price appreciation potential. That outcome hurts the market maker's own position.
This is why the structure of the market making agreement matters so much. A market maker whose revenue depends on the token performing well over time has fundamentally different incentives from an exchange whose perpetuals engine generates revenue from liquidation fees regardless of long-term market health. The two business models are not the same, and they should not be blamed for the same outcomes.
The Part the Reddit Post Gets Right
It would be dishonest to end this article without acknowledging that some of the cynicism in the Reddit post is earned — just from a different direction than the poster assumes.
The crypto industry has produced real bad actors who used "market maker" as a label while operating as price manipulators — pumping tokens for exit liquidity, coordinating wash trading, and deploying capital in ways that systematically disadvantaged retail traders. These firms existed. Some still exist. They deserve the anger.
The difference between those actors and professional spot market makers operating with transparent deal structures, documented KPIs, and no mandate conflicts is exactly the kind of distinction that the Reddit post — and most retail traders — have no framework to make. That is a real information gap in the industry, and it is one that better education can close.
If you are a retail trader trying to understand whether the market maker on your favourite token is operating cleanly, the questions to ask are not "are they liquidating me?" — they are: does this firm have a transparent deal structure? Do they publish KPI commitments? Do they have any mandate conflicts through a VC or investment book? The answers to those questions are far more informative than the label "market maker." For the full framework, see Market Making Red Flags: What to Watch For.