How Do Market Makers Adapt Their Strategies in a CLOB with Low Liquidity?

In a low-liquidity CLOB, market makers must adapt by widening their bid-ask spreads significantly. This compensates them for the increased risk of holding an asset that is difficult to sell.

They also reduce the size of their posted orders to minimize their exposure and avoid accumulating a large position they cannot offload. Market makers may also become more passive, waiting for other participants to initiate trades rather than actively quoting, and they rely more heavily on sophisticated models to price the risk of adverse selection.