Market maker

A market maker is a firm that quotes both a bid and an ask continuously so that other people can trade without waiting for a natural counterparty, earning the spread and carrying inventory risk in return. In crypto the role is filled by professional trading desks on centralised venues and by pooled liquidity on decentralised ones. For a token issuer the important part is not the function, it is the contract, because the standard crypto engagement lends the desk your tokens and sells it an option over them.

The common crypto market-making agreement is a token loan plus a call option. Signing it means you have written a call on your own supply, and the strike price, the vesting of that option and the exercise conditions decide whether your liquidity provider is aligned with you or short you.

Scroll to see the full diagram

Only the left column is something you can hold anyone to, and only the left column costs you tokens. A launch plan that assumes designated behaviour from an opportunistic participant has no liquidity commitment in it at all.

What the job is, stripped of the sales deck

A market maker posts a bid and an ask at the same time, refreshes both as conditions move, and takes the other side of whatever arrives. The income is the spread. The risk is inventory: every fill leaves the desk holding something it did not want, and it has to manage that exposure before the next fill lands.

On a centralised order book that work is visible as resting orders and it needs a counterparty willing to do it. On a decentralised exchange the same function is performed by a pooled reserve and a pricing formula, which quote continuously without anyone deciding to. Most launches use both, and the plan should say which venues each covers and when each goes live relative to the token generation event.

Neither version creates demand. A tighter spread lowers the cost of transacting for people who already wanted to transact. The projects that get the most out of a desk are the ones already generating real order flow; the ones that get hurt hired a desk to manufacture the appearance of it.

Designated versus opportunistic, and why the difference is contractual

A designated market maker is, per one institutional liquidity provider, an entity contractually obligated to provide continuous two-sided liquidity for an asset listed on a centralised or decentralised exchange, committing to maintain bid and ask orders through varying conditions rather than acting ad hoc.⁵ The obligation is the product. Uptime, maximum spread, minimum quote size and the venues covered are what make it enforceable.

An opportunistic participant has none of that. They quote your market when it is profitable and stop when it is not, which is exactly when you need them. Nothing is wrong with opportunistic flow. Counting it in a launch plan as though it were committed is another matter.

The founder test is short. If the agreement states no spread, no size, no uptime figure and no remedy when those are missed, you have not bought a liquidity commitment. You have bought a relationship.

The standard crypto deal is a token loan plus a call option

The model most early-stage projects are offered works like this: the project lends its own tokens to the desk, the desk quotes two-sided markets with them, and the desk also receives an option, not an obligation, to buy some portion of those tokens at a fixed strike instead of returning them. Strikes are often set well above the price at signing, sometimes five or ten times above it, and the option tranches are typically back-loaded.³ A venture write-up of the same market names the loan plus American call option as one of three standard engagement types, alongside a capital retainer and a self-executed setup, with the desk gaining the option to purchase loaned tokens at predetermined strikes.⁴

Read the position from the desk's side. They are long a call on your token and short nothing they paid for. The loaned inventory is not theirs, so the cheapest way to protect the position is to sell into strength, and where a venue allows it, to short.³ That behaviour is not a betrayal of the agreement. It is the agreement working exactly as drafted.

Two structural consequences land on the issuer. Tokens on loan are tokens in the market, so your effective sellable float on day one is larger than your published unlock schedule implies unless the loan is accounted for separately. And you have written a call on your own supply at a strike you picked while holding the least information you will ever have about where the token trades. In our view that is the most under-read clause in early-stage token agreements.

A documented case: Movement, Web3Port and a five billion dollar trigger

The Movement Foundation episode is the clearest public example of these clauses biting. Reporting on internal documents recorded that more than 5% of MOVE tokens assigned to the market maker Web3Port were routed through a separate entity called Rentech, and that the contracts allowed Rentech to liquidate all of its MOVE tokens if the fully diluted valuation exceeded $5 billion.⁶

Look at what that clause is. An option to sell the entire allocation, triggered by a valuation threshold rather than a date, held by a counterparty the issuer had not directly contracted with. Nothing about it requires bad faith to hurt: the moment the token performs, the clause fires, and the performance becomes the sell signal.

Ask who can transfer or assign the agreement, what happens to the loaned tokens if they do, and what conditions other than time can trigger a sale. Those three questions cost nothing and are rarely answered in a first draft.

The label is not a licence

Anyone can call themselves a market maker. On 9 October 2024 the SEC announced fraud charges against three companies purporting to be market makers and nine individuals over schemes to manipulate the markets for crypto assets sold to retail investors, stating that promoters hired so-called market makers ZM Quant and Gotbit to provide market-manipulation-as-a-service, including generating artificial trading volume.¹ The Department of Justice announced parallel charges the same day, naming ZM Quant, CLS Global and MyTrade along with their employees, and separately charging Gotbit, its chief executive and two directors.²

The method is the part worth sitting with. The FBI created its own token as an undercover vehicle to document firms wash trading for hire, and the release quotes one defendant, who had agreed to plead guilty, describing the objective on secondary markets as finding other buyers from the community because, in his words, we have to make them lose money in order to make profit.² More than $25 million in crypto was seized.

These are charges and pleas, not a verdict on the wider industry. Legitimate desks do this work properly. The point for an issuer is narrower: the title carries no registration, no capital requirement and no conduct standard, so the diligence has to come from you.

What to diligence before you sign

Get the option economics on one page. Strike per tranche, tranche sizes, vesting dates, expiry, and what happens to unexercised tokens. Then price the worst case: if every tranche is exercised at the lowest strike, how much supply reaches the market and at what cost to you.

Then the operational terms: named venues, spread and size commitments, uptime, reporting cadence, and a remedy when the commitment is missed. Then assignment and transfer, where the Movement structure went sideways. Then the exit, meaning notice period, token return mechanics and who pays for an early wind-down.

Last, a sequencing point rather than a drafting one. Signing days before the token generation event removes your ability to negotiate, because the desk knows you have no alternative and no time to find one. Run this while walking away is still available, and treat the agreement as part of the supply schedule rather than as a vendor contract.

Common questions

How do crypto market makers get paid?

Three models are common. In the loan model the project lends tokens and grants the desk a call option over some of them at fixed strikes, so the desk is paid in optionality rather than cash. In the retainer model the project pays a monthly fee and supplies capital. In a self-executed setup the project runs its own quoting software. The loan and option structure is the one most early-stage projects are offered.

What is a token loan and call option agreement?

It is the standard early-stage crypto market-making structure. The issuer lends tokens to the desk to quote with, and the desk receives an option to buy a portion of those tokens at a preset strike rather than return them. Strikes are frequently set several times above the price at signing, and option tranches are usually back-loaded. Economically the issuer has written a call on its own supply.

Do I need a market maker for a token launch?

It depends on where you list. A centralised order book opens with no depth unless somebody quotes it, so a same-day exchange listing effectively requires a desk in place beforehand. A launch that trades only on decentralised venues can rely on pooled liquidity initially and add a desk later, accepting wider spreads and less institutional access in the meantime. The venue plan should decide this, not the calendar.

Is hiring a market maker legal?

Providing genuine two-sided liquidity is ordinary market activity. Paying a firm to generate artificial volume or move a price is not, and it has been charged as fraud. In October 2024 the SEC brought charges against three companies purporting to be market makers over what it described as market-manipulation-as-a-service, and the Department of Justice charged four firms and their staff in a parallel action. Diligence the counterparty and read the deliverables carefully.

See Token Launch Strategy for how this applies in practice.

Sources

SEC Charges Three So-Called Market Makers and Nine Individuals With Fraudulent Crypto Asset Schemes (Press Release 2024-166)
U.S. Securities and Exchange Commission, 2024
Fraud charges over manipulation-as-a-service, naming ZM Quant and Gotbit.
Eighteen Individuals and Entities Charged in International Operation Targeting Widespread Fraud and Manipulation in the Cryptocurrency Markets
U.S. Department of Justice, U.S. Attorney's Office, District of Massachusetts, 2024
Operation Token Mirrors. Wash trading for hire by four named market makers, an FBI-created token used as an undercover vehicle, and over $25 million in crypto seized.
Broken market-making deals are derailing promising projects
crypto.news (signed opinion analysis), 2025
Describes the loan plus call option structure, high strike prices set five to ten times above market, back-loaded vesting, and the resulting incentive to hedge, sell or short.
Liquidity is the Product: How to Launch Tokens and Work with Market Makers
Lata Persson, Fabric Ventures, 2024
Independent second source for the loan plus American call option model, presented as one of three standard engagement types alongside a capital retainer and self-executed market making.
Designated Market Makers in Crypto: Ensuring Liquidity and Stability
XBTO, 2025
Definition of a designated market maker as contractually obligated to provide continuous two-sided liquidity. Written by a market-making firm, so treat the framing as self-interested and the contractual distinction as sound.
WLFI-linked MOVE and Web3Port implicated in $38m token dump scandal
crypto.news, 2025
Reports on CoinDesk's investigation of the Movement Foundation market-making contracts, including routing through Rentech and a clause permitting full liquidation above a $5 billion fully diluted valuation.

Last reviewed 2026-08

Related terms

Know the terms but not sure how they apply to your project? That is what an engagement is for. We design, document, and stress-test the whole token economy inside the Tokenomics Data Room.

Book a discovery call

100+ projects advised. Complete tokenomics in 4 to 6 weeks.