The digital asset liquidity landscape has evolved beyond traditional market-making paradigms, necessitating a new taxonomy that reflects the complexity and adaptive nature of the market. Fundamentally, digital asset liquidity providers (LPs) are either institutional market makers or decentralized participants whose responsibility is to bridge the gap between buyers and sellers, providing market stability and improved access. This is not dissimilar to the role that LPs play in traditional financial markets. However, the digital asset ecosystem is fragmented and rapidly evolving which requires innovative solutions to their unique problems. Digital asset liquidity often hinges on specific trading pairs, where one token might have adequate liquidity and the other does not. This is a unique challenge that digital asset LPs are looking to solve.
Given the pace at which the digital asset economy is evolving due to the emergence of new regulation, constant development of new financial products, and substantial growth in market participants, the roles LPs play in the digital asset economy are nuanced.
In this article we introduce a four-factor framework for categorizing LPs, capturing the nuanced interplay between operational models, service layers, asset focus, and regulatory positioning.
The Taxonomy of digital asset liquidity providers
The global digital asset market relies on a complex ecosystem of LPs that ensure efficient trading, price stability, and market accessibility. These LPs operate across centralized and decentralized platforms, catering to diverse participants ranging from retail traders to institutional investors. Below is a detailed categorization of the LPs shaping today’s crypto markets, constructed to highlight their unique roles, operational nuances, and interdependencies.
We have structured our market map based off four key factors:
- Operational model: Institutional vs Protocol-native vs Hybrid
- Service layer: Primary liquidity (market maker) vs Secondary liquidity
- Asset class focus: Stablecoins, spots, derivatives, and restaked assets
- Geographic-regulatory positioning
Our market map has six main categories:
- Institutional liquidity providers
- Decentralized liquidity protocols
- Hybrid CeDeFi liquidity
- Specialized liquidity verticals
- Custodial vs. non-custodial LPs
- Geo-strategic hybrids
The future outlook for LPs
The digital asset economy is rapidly evolving thanks to constant innovation, regulatory developments, and the substantial growth in institutional and retail participation. This market dynamism has seen fundamental changes in the roles LPs play.
The increase in institutional adoption and interest has pushed digital asset LPs to provide traditional prime brokerage services in which they offer sophisticated trading, custodial services, and automated market making. We will see further development and additional offerings of institutional-grade liquidity and robust risk management to continue to attract large players into the digital asset market.
Examples of this include Aave Arc, a permissioned liquidity protocol specifically designed for institutions seeking compliant access to DeFi lending and borrowing, and EigenLayer, which enables institutional restaking and composable yield strategies on Ethereum while offering enhanced risk controls and capital efficiency. Additionally, expect to see LPs experimenting with and adopting dynamic fee structures, liquidity concentration strategies, and hybrid models.
A central problem that is being tackled by LPs is the fragmented nature of liquidity across blockchains and how liquidity becomes siloed. Cross-chain liquidity solutions enable trading efficiencies, improved price discovery, and less market volatility.
An example of this is Amber Group offering JPY/KRW stablecoin pairs with embedded FX hedges. The LPs play a crucial role in enabling cross-chain development through the creation of cross-chain bridges and omnichain protocols to enable the seamless exchange of assets that fundamentally increase flexibility, scalability, and efficiency in the market.
LPs differentiate themselves through technological innovation, specifically in AI, as in virtually every industry. LPs are integrating AI and machine learning to improve predictive analytics and algorithmic optimization, an example of this is Auros deploying LLMs to simulate CEX/DEX flow correlations in real time. Given the 24/7/365 nature of digital assets, AI further enables liquidity and provides the market with the required agility, responsiveness, and optimization for further adoption and growth.
As the EU has implemented their Markets-in-Crypto-Assets (MiCA) framework, and the relatively new GENIUS Act in the USA, regulatory changes are centre stage. The US and Asia are next to develop and implement their regulatory frameworks and the expectation is that with additional regulatory guidelines there will be further transparency around market activities and consumer protections that will vastly improve market confidence and stability.
Furthermore, market leading LPs have been seen to have a mix of the following four characteristics:
- Multi-chain depth: They have a mastery of layer 2/restaking liquidity (ex. EigenLayer)
- Regulatory-tech stack: They have automated MiCA / KYC checks (ex. Circle’s Verite)
- Yield layer composability: Real-time exposure across staking, DeFi, and RWAs
- Adverse environment tools: MEV extraction, gas optimizers, and privacy-preserving swaps
The future of digital asset liquidity belongs to adaptive LPs who embrace innovation and flexibility. Success hinges on developing customer-centric strategies that directly address critical market pain points and maximize value across the ecosystem. As the landscape evolves, LPs must shift from rigid, traditional approaches to modular, hybrid solutions.
Agile providers who tailor their solutions to emerging market needs will capture the growing opportunity. The winners in this market will not be defined by size alone, but by their ability to evolve alongside their customers’ sophisticated demands.
What does this mean in the grander scheme of things?
The digital asset market is experiencing a transformative period marked by unprecedented liquidity depth and institutional engagement and adoption.
As we progress through 2025, the market has achieved significant milestones, including a ~$4 trillion market capitalization (CoinGecko). The approval of Bitcoin and Ethereum ETFs has catalysed this growth, with 97 active crypto ETFs filings now demonstrating the market’s maturation and shift beyond Bitcoin and Ethereum.
Decentralized exchanges (DEXs) are gaining significant traction as well, with DEXs expected to capture 20% of centralized exchange (CEXs) volumes with projected trading to exceed $4 trillion in 2025.
The stablecoin ecosystem is also emerging as a crucial bridge between traditional and digital finance with daily settlement volumes expected to reach $300 billion by the end of the year and according to Artemis, Stablecoin supply has already exceeded $280 billion.
This growth is underpinned by favourable regulatory developments, technological development in DeFi and AI integration that is enabling faster transactions and increasing institutional-grade product offerings.
As major financial institutions continue to integrate digital asset services and regulatory frameworks evolve and are implemented, the market is positioned for sustained growth in both liquidity depth and fiat-to-crypto service adoption. This convergence of factors signals a robust foundation for the digital asset market’s continued growth and mainstream financial integration.