Imagine this scenario. A brilliant team develops a groundbreaking crypto project. They have innovative tech, a passionate community, and a token that’s ready to change the game. They raise funds, build hype, and prepare for their big launch on a major exchange. Everything seems perfect. Then, weeks after listing, the token price inexplicably tanks. Trading volume is chaotic, and investor confidence evaporates. The project, once so promising, spirals into obscurity.
What went wrong? While many factors can contribute to a project’s failure, one of the most common yet least discussed culprits is a broken market making agreement. It’s the hidden deal breaker, a silent killer that can derail even the most promising ventures before they ever have a chance to succeed.
Before we dive into the dark side, let’s clarify the role of a market maker. In any healthy market, from the New York Stock Exchange to your favorite crypto exchange, you need liquidity. Liquidity simply means there are enough buyers and sellers available so you can trade an asset quickly without causing a massive price swing.
Market makers are the firms that provide this liquidity. They place both buy and sell orders on an exchange, ensuring there’s always a market for the token. Their work leads to three key benefits for a project:
When it works, it’s a vital service that fosters a stable and trustworthy trading environment. But when it doesn’t, it can be catastrophic.
The problem is that the incentives between a project and its market maker are often dangerously misaligned. A project wants long term, sustainable growth and price stability. A market maker, on the other hand, often profits from volatility. Their goal is to maximize their trading revenue, and sometimes the easiest way to do that is at the project’s expense.
Here are a few ways these deals turn sour:
Many market makers operate like a black box. A project hands over a substantial loan, often millions of dollars in both their native token and stablecoins, with very little insight into how it will be used.
Some predatory firms will use the project’s own token inventory to short the token, driving the price down to buy it back cheaper and pocket the difference. Others might use the project’s stablecoin loan as their personal trading capital, taking on huge risks in unrelated markets. In the worst cases, they do the bare minimum required by the contract while their primary focus is extracting as much value as possible for themselves, regardless of the consequences for the token and its community.
So why do so many smart founders sign these terrible agreements? It often comes down to pressure and inexperience. Getting listed on a top tier exchange is a major milestone, but exchanges almost always require a project to have a market maker lined up. Faced with this requirement, teams often rush the decision.
They get wooed by market makers with big brand names or tempted by what seems like a low monthly fee. They fail to ask the hard questions about strategy, risk management, and how their assets will actually be deployed. They focus on the small retainer fee instead of scrutinizing what the firm plans to do with the multi million dollar loan of their tokens and cash.
The crypto industry has lived in a “Wild West” phase for too long. For the ecosystem to mature, we need to move away from these opaque, handshake deals and towards a new standard of transparency. The solution isn’t complicated: standardized disclosures for every market making agreement.
Just as public companies must file standardized reports with the SEC, crypto projects should demand clear, upfront information from their market makers. This isn't about revealing secret trading algorithms. It's about basic accountability. Before signing any deal, a project team should receive a clear disclosure that outlines key terms, including:
To hold a market maker accountable, projects need to understand what good performance looks like. The three most important KPIs are spread, uptime, and depth.
A tight spread is a sign of an efficient market. A project should agree on a target spread with their market maker and monitor it closely. Uptime is critical. The market maker should be active and quoting on both sides of the order book nearly 100% of the time. Finally, depth refers to the volume of orders on the book. Healthy depth ensures that traders can execute large orders without causing the price to crash or skyrocket.
Broken market making deals are not just a problem for individual projects; they damage the credibility of the entire crypto industry. Every time a promising project fails due to manipulation or mismanagement, it erodes trust among builders, users, and investors.
The path forward requires a shift in mindset. Project founders need to educate themselves, perform rigorous due diligence, and demand transparency from their partners. It’s no longer enough to just trust a brand name. The future of crypto innovation depends on building a more mature, accountable, and transparent ecosystem, starting with the very foundation of its markets.
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