How to Choose a Market Maker for Your Token

Choosing a market maker is one of the most important infrastructure decisions a token project makes. The right partner provides the liquidity foundation your token needs. The wrong one can damage your market structure, drain your treasury through hidden costs, and leave you locked into a contract that doesn't serve your interests.

The market making industry in crypto is opaque. There are excellent firms, mediocre firms, and outright predatory ones. They all use similar language on their websites. This guide gives you a framework for telling them apart.

Start with the business model

Before evaluating capabilities, understand how the market maker makes money. This determines whose interests they're optimising for.

Principal model firms deploy their own capital. They earn from the bid-ask spread. Their P&L is aligned with market quality. They don't need your tokens to operate.

Loan model firms borrow your tokens and trade with them. They typically receive a call option on the borrowed tokens. Their upside is tied to your token price increasing, which sounds aligned but creates conflicts around volatility, timing, and the option exercise.

Hybrid firms combine elements of both, often starting with a principal approach for the first engagement and moving to loan structures for larger commitments.

Ask directly: "Do you need a token loan to make markets for us?" The answer tells you which model you're dealing with.

The evaluation framework

Venue coverage

Questions to ask:

• Which CEXs do you actively make markets on?
• Which DEX protocols and chains do you support?
• Can you operate across our full venue footprint from day one?

What to look for: A market maker that covers both CEX and DEX venues under one engagement. If they only do CEX, you'll need a separate DEX liquidity solution. If they only do DEX, your exchange order books will be unmanaged. Either gap means fragmented oversight and potential price inconsistency.

Transparency and reporting

Questions to ask:

• What reporting do you provide? Daily? Real-time dashboard?
• Can we see your open orders and inventory positions?
• Do you provide attribution on volume (how much is yours vs organic)?

What to look for: Real-time or daily reporting as a baseline. A client dashboard where you can see spreads, depth, volume, and positions is the gold standard. If a market maker says "we'll send you a monthly summary," that's not enough. Monthly reporting means you won't know there's a problem until a month after it started.

Track record

Questions to ask:

• How many tokens do you currently make markets for?
• Can you provide references from current or past clients?
• What's your average engagement duration?

What to look for: Active, verifiable engagements. Be cautious of firms that claim to work with "100+ tokens" but can't name any. Look for engagement duration as a quality signal. If their average engagement is 3 months, clients are leaving quickly. If it's 12+ months, clients are staying because the service works.

Technical infrastructure

Questions to ask:

• What's your system uptime over the past 12 months?
• How do you handle exchange API outages?
• Where is your infrastructure hosted? Do you have redundancy?
• How quickly can you react to a sudden price move?

What to look for: Uptime above 95%. Documented procedures for exchange outages. Infrastructure across multiple regions or availability zones. Response times measured in seconds, not minutes. Market making is an engineering discipline. If the firm can't talk fluently about their tech stack, that's a signal.

Risk management

Questions to ask:

• How do you manage inventory risk?
• What happens during a market crash? Do you keep quoting?
• Do you use hedging? If so, how?
• What are your circuit breakers?

What to look for: Clear, specific answers. "We manage risk carefully" is not an answer. "We hedge delta exposure via perps on Binance, maintain maximum inventory limits of X tokens, and pull quotes if volatility exceeds Y standard deviations" is an answer.

Capital and scale

Questions to ask:

• How much capital do you deploy per engagement?
• Is that your own capital or are you using our tokens?
• Can you scale up if our volume grows?

What to look for: Capital deployment should be proportional to your token's trading profile. A market maker deploying $50K for a token doing $5M daily volume isn't providing meaningful liquidity. A market maker claiming to deploy $10M for a token doing $100K daily volume is either lying or has a different agenda.

Contract terms to negotiate

Duration and exit

Standard engagements are 6-12 months. Avoid multi-year commitments without performance-based exit clauses. You should be able to terminate with 30-60 days notice if the market maker isn't meeting agreed targets.

Watch out for: Automatic renewal clauses, penalties for early termination, and lock-up periods where you can't engage another market maker.

Performance targets

Define measurable targets upfront:

• Maximum bid-ask spread (e.g. under 0.5% for 90% of trading hours)
• Minimum order book depth (e.g. $50K within 2% of mid-price on each side)
• Minimum uptime (e.g. 95% of trading hours)
• Cross-venue price consistency (e.g. under 0.3% divergence)

These targets should be part of the contract, not informal promises. If the market maker can't commit to specific numbers, ask why.

Fee structure

Understand the total cost:

• Monthly retainer (fixed fee for the service)
• Performance fees (bonuses for exceeding targets)
• Setup/onboarding fees (one-time costs)
• Token loan terms (if applicable: loan size, option strike price, option expiry, option exercise mechanics)

Calculate the total cost of the engagement over 12 months under various token price scenarios. For loan model arrangements, model what happens if your token 2x, 5x, or 10x. The option cost can dwarf the retainer.

Reporting obligations

Specify in the contract:

• What reports you receive and how often
• Access to a real-time dashboard (if offered)
• Right to audit trading activity
• Notification requirements for unusual events (system outages, large trades, inventory limit breaches)

Exclusivity

Some market makers request exclusivity. This means you can't engage another market maker for the same venues. This is sometimes reasonable (multiple market makers on the same exchange can interfere with each other) but should come with strong performance guarantees. If they're exclusive, they need to deliver.

Due diligence checklist

Before signing, verify:

• The firm is a registered legal entity (not an anonymous team)
• They can provide references from at least 2-3 current or recent clients
• You've spoken directly with those references
• Their claimed trading history is verifiable (exchange volume data, on-chain activity)
• The contract has been reviewed by legal counsel
• Fee structure is fully understood with no hidden costs
• Token loan terms (if applicable) have been modelled under multiple price scenarios
• Performance targets are specific, measurable, and contractually binding
• Exit terms are clearly defined with reasonable notice periods
• Reporting obligations are specified in the contract
• You understand who your day-to-day contact will be (not just the sales team)

Red flags

They guarantee price levels. No legitimate market maker guarantees a specific token price. They provide liquidity. Price is determined by the market.

They can't explain their technology. Market making is a technology business. If the firm talks only about relationships and deal-making and can't discuss their infrastructure, trading systems, or risk management in technical terms, they may be reselling another firm's services or operating with inadequate systems.

They push for large token loans with aggressive options. If the conversation quickly moves to "we need X million tokens with a call option at Y strike," the firm's primary interest might be the option, not the market making.

They resist transparency. If they won't commit to regular reporting, won't give you dashboard access, and characterise their trading strategy as "proprietary and confidential," you won't know what they're doing with your market.

They promise guaranteed volume. Volume is an outcome of market quality and organic interest, not something a legitimate market maker manufactures. Promised volume often means wash trading, which is illegal in most jurisdictions and will eventually be detected.

Their team is anonymous. Market making involves fiduciary-like responsibility over your token's liquidity. The people doing it should have verifiable identities and professional backgrounds.

They have no skin in the game. If the market maker has zero economic exposure to your token's success, their incentive is to collect retainer fees with minimum effort. The best arrangements create alignment where the market maker benefits from your token having healthy, growing markets.

Making the decision

After evaluating multiple firms, the decision usually comes down to three factors:

Alignment. Whose business model puts your interests and theirs on the same side? Principal model firms that profit from tight spreads are naturally aligned with your desire for healthy markets. Loan model firms that profit from options are aligned with price appreciation, which sounds good but creates subtle conflicts.

Capability. Can they actually deliver across your full venue footprint with the technical infrastructure to operate reliably at scale? References and verifiable track records matter more than pitch decks.

Communication. How do they communicate before the contract is signed? If they're responsive, transparent, and willing to discuss specifics during the sales process, they'll likely be the same as a client. If they're vague, slow, and push for quick signatures, expect the same after you sign.

Your market maker will be one of the longest-running vendor relationships your project has. Choose with the same diligence you'd apply to hiring a co-founder or selecting a lead investor.