In this dark forest of market making, holding the bottom line is difficult—pretentious bad actors will always be more attractive than honest, straightforward players.

This is the confession of a frontline market maker and a survival guide for projects navigating the dark forest. I hope it offers you some help. :)

Let me introduce myself: I’m Max, a Gen Z who already feels old. Originally, I was just another struggling finance student in Hong Kong, but since 2021, I’ve been in crypto (thanks to the industry for saving me). Though I haven’t been here for long, I first entered the space as a project founder before launching a developer community and accelerator, which kept me close to early-stage entrepreneurs. Now, I lead the market-making business line at @MetalphaPro. Thanks to my boss, I got the fancy title of Head of Ecosystem, but in reality, I handle BD and sales.

Over the past year, I’ve been involved in listings and market-making for over a dozen coins on @binance, @okx, @Bybit_Official, and several second-tier exchanges. I’ve gained some modest experience along the way.

Recently, market making has become a hot topic. I’ve long wanted to break down the unique roles within this industry systematically, and this seemed like the perfect opportunity to do so. My expertise is limited, so if there are any mistakes, I appreciate your understanding. This article reflects only my personal views and is 100% written by me.

Attaching a photo of my dog to start things off.

Starting with GPS’s “Observation Tag”…

When I heard that GPS had been given an “observation tag” by @binance, I was chatting with a founder of a project that had been in the works for over a year and was planning to list in Q2. This guy is young, good-looking, and highly capable, but I could hear the exhaustion in his voice. His project had raised a few million, achieved some solid milestones, and everything seemed to be going well. But for a founder, fundraising is just debt to repay. Over the past year, he had to keep pivoting the narrative while struggling through a brutal market—trying to close a new funding round, negotiating with top-tier exchanges, and worrying about how his token would perform post-listing, especially after seeing so many recent listings break below their initial price. Only those who have run projects themselves can truly understand the stress, uncertainty, and anxiety that come with it.

As we chatted, Binance’s notice suddenly popped up. Although his project had no market-making collaboration with GPS, we had both interacted with their team members over the past two years, so the news hit close to home. I won’t go into detailed analysis or speculation—talking too much can be annoying. Let’s wait for official statements from Binance and the project. But over the past two years, I’ve seen too many projects and retail investors suffer at the hands of market makers. This incident gave me the push to finally write this article, hoping it can help project teams and industry professionals. Enough rambling—let’s get to the real insights.

Market Maker Business Models: It’s Just “Placing Orders,” Not Some Mysterious Magic

Market making isn’t a new concept in crypto. Traditional finance also has market makers, but in TradFi, this service is often referred to as the Greenshoe mechanism. The name comes from the Boston-based Green Shoe Company, which first used this mechanism during its IPO in 1963. While the exact mechanics differ, the core responsibility remains the same: quoting both buy and sell orders during an IPO to maintain liquidity and stabilize prices. However, due to strict compliance regulations, Greenshoe operations in TradFi are fairly standardized, with little room for extra “profits.” It’s considered just another auxiliary trading desk function—so much so that no major trading desk even bothers to promote it as a separate service.

Ironically, in the crypto industry, this standard function has somehow been elevated to an almost mythical status, seen as a powerful force that manipulates the market. But if market makers were truly just providing liquidity by following industry norms, there would be no need to label them as “scythes” cutting down retail traders. After all, liquidity provision mainly involves quoting both sides of the order book. Of course, the broader crypto market-making industry includes other business models, but today, we’ll focus only on the one most relevant to projects: market-making services for token listings. These typically fall into a few main categories:

Active Market Makers

The demonization of market makers in the industry largely stems from the early existence and operations of active market makers. The term refers to entities that fulfill all the market’s fantasies about “market makers.” Typically, active market makers collaborate with project teams to directly manipulate market prices, pushing them up or down while profiting from the process. They exploit retail investors and share profits with the project teams. Their cooperation models vary widely, involving token lending, API access, leveraged funding, profit-sharing, and other mechanisms. Some rogue market makers even operate without communicating with project teams, using their own funds to accumulate a position before taking full control of price movements.

Which active market makers exist in the market? In reality, the market makers that are active in PR, hosting events, and are well-known by name are all passive market makers—at least, they must claim to be, due to compliance concerns. Otherwise, they wouldn’t be able to conduct marketing openly (though some market makers may have engaged in active cases in the industry’s early days or may still be secretly doing so).

Most active market makers are extremely low-profile and operate without a public name because their activities are inherently non-compliant. As the industry becomes more regulated, previously high-profile firms like ZMQ and Gotbit have been targeted by the FBI and are now facing serious compliance issues. The remaining active market makers have become even more secretive. Some major ones have executed so-called “successful cases,” earning them a strong reputation in the industry. Most of their deals are now conducted through referrals within trusted circles.

Passive Market Makers

Passive market makers, including us and many of our peers, fall into this category. Their primary role is to place maker orders on both sides of the order book in centralized exchanges, providing market liquidity. The business model mainly consists of two types:

• Token Loan

• Retainer (monthly fee)

Token Loan Model

This is currently the most common and widely adopted cooperation model. In simple terms, the project lends tokens to the market maker for a fixed period, and in return, the market maker provides market-making services.

A typical token loan deal consists of several key aspects:

Loan Amount (x%): Usually a percentage of the token’s total supply.

Loan Term (x months): The duration of the loan, after which the service ends and settlement occurs based on the agreed option terms.

Option Structure: The settlement price for the market maker when the service term ends.

Liquidity KPI: The required order book depth, which may involve multiple exchanges and different price ranges.

How do market makers make money in this model?

Market makers earn money in two ways. First, they profit from the bid-ask spread while placing orders, though this is usually a smaller portion. The larger portion comes from the options granted by the project.

Anyone familiar with finance knows that an option has intrinsic value from the moment the contract is signed. This value is typically a percentage of the borrowed token’s total value. For example, if a market maker borrows $1 million worth of tokens and the option’s initial value is 3%, it means that by strictly following a delta hedge strategy, they can realize a relatively stable profit of $30,000. In normal market conditions (excluding extreme cases like rapid price surges or crashes that disrupt delta hedging), the trading desk’s expected earnings from this deal would be $30,000 plus the small profits from bid-ask spreads.

Surprisingly, market makers may not earn as much as people think. In reality, this profit margin is not unrealistic—market-making competition is fierce, and option pricing has become increasingly efficient, leaving little room for excess margins.

Retainer Model

This is the second relatively common model, where the project does not lend tokens to the market maker but keeps them in its own trading account. The market maker connects via API to provide market-making services. The advantage of this model is that the tokens remain under the project’s control, and all trading activities in the account are fully transparent to the project. In theory, the project can withdraw its funds at any time, eliminating the risk of the market maker acting maliciously. However, this model requires the project to maintain a balance of both tokens and USDT in the account for placing bid-ask orders. Additionally, the project typically pays a monthly service fee to the market maker.

In this setup, the market maker executes orders according to the project’s liquidity KPIs and earns only the monthly service fee. The funds in the account remain unrelated to the market maker, and in cases of low liquidity or extreme market movements (such as flash crashes), order placement can lead to losses, which are fully borne by the project.

Both the token loan and retainer models have their pros and cons. Some trading firms specialize in one model, while others, like us, support both. Projects should choose based on their specific needs and circumstances.

Common Misconceptions

• Market makers are responsible for “pumping prices,” “chart manipulation,” and “insider trading.”

Qualified passive market makers are neutral and do not actively participate in price manipulation, market cap management, or retail exploitation.

• Providing liquidity means “wash trading.”

An exchange’s order book consists of two types of orders: maker orders and taker orders. Passive market makers primarily place maker orders, while their taker order ratio is minimal. No matter how deep a market maker’s orders are placed in the order book, if there are no takers to fill them, it does not directly increase trading volume. However, if a market maker trades against itself, known as “self-trading,” it poses regulatory risks. Leading exchanges strictly monitor such activity, and excessive self-trading may result in warnings or penalties for both the market-making account and the token.

• So, does this mean passive market makers are useless?

They do not directly influence price or trading volume, so at first glance, they may seem unnecessary. However, good liquidity is the foundation of everything. Small investors focus on price trends, but large investors prioritize trading volume and order book depth before entering a market. Active trading and a healthy price depend on the project’s product strength and marketing efforts, but a market maker’s cooperation is also essential. Moreover, top-tier exchanges rarely allow projects to list without a professional market maker. Without one, the market at launch would likely be chaotic. Market makers must register in advance, so at this stage, working with a passive market maker is a necessary step for any project aiming to list on a leading CEX.

• If market making is just order placement, is it easy? Can projects do it themselves?

Yes and no. If a project has its own trading team and is relatively large, some secondary exchanges may allow it to handle market making internally. However, if not, or if a team needs to be built from scratch, it is often more cost-effective and lower risk to hire a professional market maker. Without expertise in market making, projects may struggle to handle extreme market conditions, potentially incurring significant losses from improper order placement.

The Role of Market Makers: Initial Liquidity as the Most Valuable Resource

Now that we’ve covered business models, let’s discuss the current landscape, which may help you understand things better.

What does the crypto market of 2024-2025 look like from a liquidity perspective? Here’s my view:

1. BTC is experiencing an independent rally, steadily rising with ample liquidity at the top. While there have been recent pullbacks, the foundation remains strong. Miners, whose costs range in the $50k-$60k range, are happy, and traditional institutions rushing in are also pleased.

2. At the lower end, PVP trading is intense, and liquidity has been relatively sufficient. Players on platforms like @pumpdotfun, @gmgnai, @solana, @base, and @BNBCHAIN are losing money enthusiastically (I’ve contributed some myself—damn it), while outliers and insiders are making good profits.

3. Mid-tier liquidity has dried up. The peaks seen with Trump and Libra tokens have almost completely drained liquidity and buy-side demand from the sector, shifting capital irreversibly from inside the market to outside. Tokens with valuations ranging from hundreds of millions to billions now find themselves in an awkward position. New listings on top-tier exchanges struggle to attract buyers, and within two months of listing, trading volume plummets. Most trading activity and depth happen at launch, only to quickly drop below VC entry prices. When VCs unlock their tokens, they are likely at a loss, and when team tokens unlock, they often go to zero.

In this cycle, mid-tier tokens seem to be struggling the most. But the harsh reality is that over 90% of so-called “Web3 native” professionals—the ones earning salaries, attending conferences, building businesses, working in VC, project teams, accelerators, BD, marketing, and development—are all engaged in the mid-tier token economy. If you look at fundraising, product development, marketing, airdrops, and exchange listings, all these activities revolve around mid-tier projects launching on centralized exchanges. This is why many industry professionals haven’t made much money this cycle and are having a tough time.

However, market makers hold the most scarce resource for mid-tier tokens: initial liquidity. Liquidity alone isn’t enough—it has to come early. It needs to be there at launch, because if a project collapses, even having a large token supply is meaningless. A project might have 15% of its supply circulating at launch, with 1-2% (or more) allocated to market makers. This unlocked launch liquidity is an extremely valuable resource in the current market. As a result, not only is the competition among market makers getting fiercer, but many VCs and projects are also setting up their own temporary market-making teams. Some of these teams lack even basic trading capabilities but still prioritize acquiring tokens first, assuming that since most projects eventually go to zero, it doesn’t matter whether they can manage liquidity properly.

The Dark Forest of Gresham’s Law: Honest Players Can’t Compete with “Bad Actors”

In this market evolution, market makers have developed a unique ecosystem: on one hand, the number of market makers has surged, and pricing has become insanely competitive; on the other hand, service quality and professional competence vary drastically, leading to frequent after-sales issues. The most common problems include pulling liquidity and default dumping.

First, let’s clarify: market makers can sell tokens. In fact, if a token price skyrockets, the algorithm naturally shifts towards selling because the borrowed assets are tokens, and final settlements with the project are in USDT (if this isn’t clear, refer back to the token loan option section). However, a qualified passive market maker should follow its algorithm to place orders normally, rather than aggressively dumping as a taker. Such behavior can severely harm a project.

Why do market makers do this? Let’s go back to the option concept discussed earlier. A market maker with a token loan allocation follows its algorithm, and if the market remains relatively stable, it should successfully extract the option value, earning a 3% return. But if the market maker believes the project will go to zero by the settlement date, they can execute a dump at listing to realize a 100% profit—33 times more than the normal MM return.

Of course, this is the most extreme and straightforward example. In reality, operations are far more complex, but the underlying logic remains: shorting the token by selling high when liquidity is strong and repurchasing at settlement.

This strategy is not only unethical and non-compliant but also comes with additional risks. First, the market maker cannot maintain liquidity per the KPI agreement since they lack a healthy inventory. Second, if the token moves in the wrong direction, they could suffer massive losses and fail to cover settlements.

Why Does This Behavior Keep Happening?

1. The industry’s compliance is still in its early stages. When it comes to the token loan model, although market makers report their service status to project teams through daily reports, weekly reports, and dashboards, and there are third-party monitoring institutions and tools in the market, what happens with the tokens in market makers’ accounts remains a black box, and the market lacks effective regulatory measures. After all, the only party with concrete evidence and visibility into every trade made by market makers is the centralized exchange itself. However, many market makers are high-tier clients (V8, V9) of centralized exchanges, contributing billions in fees and funds to these platforms annually. Exchanges also have an obligation to protect their clients’ privacy, so how could they possibly disclose their trading details to project teams for dispute resolution? Speaking of this, one cannot help but admire @heyibinance and @cz_binance for their decisiveness. To my knowledge, this is the first time that a complete disclosure of a market maker’s trading details has been made, down to the exact minute, operational details, and cash-out amounts. Whether such an action should be taken is open to debate, but the original intention is certainly good.

2. The awareness of market makers among project teams and the entire industry still needs improvement. What surprises me the most is that even top-tier investors, founders of projects that have raised tens of millions of dollars, and even exchange employees have little understanding of the market-making business. This is one of the key reasons I decided to write this piece. Most project teams are experiencing this for the “first time,” while market makers are seasoned “players.” As someone working on the front lines, I sometimes watch project teams opt for so-called “better terms” and ask myself: Should I also match the outrageous terms offered by competitors just to secure the deal? In this dark forest of market making, holding the line is difficult. Pretentious “players” will always be more attractive than honest professionals. Only when the industry’s understanding is aligned can we prevent bad actors from driving out the good ones.

How to Choose Your Market Maker?

Here are a few important questions and tips to consider:

• Is an active market maker always a bad choice?

When project teams ask me this question, I don’t give a definitive “no.” If we set compliance aside, this is a debatable topic. Some projects have indeed benefited from tight collaboration with active market makers, leading to better-looking charts, higher trading volume, and more cashing-out opportunities. However, there are also countless cases where things went wrong. My point is simple: If a market maker can genuinely pump your price, they will just as ruthlessly dump it. Market liquidity is limited—at the end of the day, you and your active market maker are on opposite sides, and the market’s money is either yours or theirs.

• Token loan or retainer?

The token loan model remains more mainstream, but retainers are gradually gaining market share. This choice depends on a project team’s preferences and needs. For instance, projects that strongly control token distribution may be reluctant to have large, unpredictable liquidity controlled externally.

• Avoid relying on just one passive market maker

Don’t put all your eggs in one basket. It’s better to work with 2-4 market makers so you can compare terms and have backups in case one goes down. To secure deals, market makers often propose additional value-added services, so having multiple partners increases your chances of gaining extra benefits. However, to avoid a “too many cooks in the kitchen” situation, assign different exchanges to different market makers—otherwise, monitoring them becomes exponentially harder.

• Don’t choose a market maker solely based on investment

Accepting investment from a market maker is fine, and having a longer runway is always beneficial. However, keep in mind that market makers and VCs play different games. Since market makers control a significant portion of the early liquidity, they can manipulate token prices, hedge, or engage in other strategies before their locked investments unlock. So if a market maker is both investing in your token and receiving a token loan, it may not always be a purely positive thing for your project.

• Don’t choose a market maker based only on liquidity KPIs

Liquidity KPIs are hard to verify precisely in practice. If a market maker promises attractive terms but fails to deliver, those promises mean nothing. Before lending out tokens, you hold the power, but once the tokens are in their hands, you lose leverage. Market makers have plenty of ways to mislead you.

• Shift your mindset: Be the “player” yourself

Remember, you are the client. Before signing with a market maker, compare terms thoroughly, discuss monitoring methods, and establish mechanisms to prevent breaches. Use one market maker’s offer to negotiate better terms with another. The terms should leave no room for ambiguity—if anything is unclear, don’t guess, just ask.

A Little Sentiment

As a junior in the industry, I truly cherish the opportunity to experience and engage with it at this depth. I often feel the dirtiness and chaos of the industry, yet at the same time, I constantly sense its vitality and energy. I’ve never considered myself one of the smartest people—many young peers in the industry are exceptionally talented and have quickly found their place. However, many more young people are actually lost; without the Web3 industry, it would be difficult for them to find a path upward.

I’m fortunate to have a boss with strong values and a highly professional trading team as our backbone. Our stable asset management business allows us to avoid relying on market-making to sustain the team; instead, we use market-making to build relationships. I’ve always followed my own pace, approaching project teams with the mindset of making friends. This approach has led me to miss some deals but also secure a few that I am truly proud of. Some projects didn’t turn into business opportunities, yet I still became friends with the teams behind them.

I’ve written quite a bit, and I was hesitant about publishing this article. On one hand, I worry that my expertise might not be sufficient or that my expression might be inadequate, misleading project teams and readers. On the other hand, market makers have always been a rather secretive part of the industry, and I fear that speaking about these topics might cross certain boundaries or disrupt the status quo.

However, I truly believe that as the industry evolves and compliance gradually becomes the norm, the role of market makers will no longer be demonized but instead will come into the light. I hope this article, in some small way, contributes to that progress.

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