Leaving behind the chaotic early days, crypto market makers are celebrating their coming of age
Source: TechFlow (Shenchao)
In the cryptocurrency sphere, market makers seem perpetually at the top of the food chain. They are seen as "systemic winners," alongside exchanges, imagined as "pumps" that reap profits from every market fluctuation without bearing directional risk.
However, a closer look into the industry reveals a harsher reality: some are wiped out overnight in extreme market conditions, others are forced to exit the market due to a single risk management lapse, and many more are forced to restructure their entire business model amidst halved profits, ineffective price wars, and a scarcity of quality assets.
The life of a crypto market maker is far from glamorous.
Over the past two years, the industry has undergone a quiet yet brutal purge. With the decline of exorbitant profits and tightening regulations, compliance capabilities, risk control systems, and technological expertise have replaced the former boldness and gray-area operations as the new survival threshold. This is no longer a game of "whoever is boldest makes money," but rather a long-term, professional, and low-tolerance survival competition.
In in-depth interviews with several leading market makers, a highly consistent assessment emerged: today's crypto market makers are no longer simply "liquidity providers," but are evolving into a hybrid model of "secondary market investor + risk manager + infrastructure."
As the tide recedes, competition returns to rationality, and risks are fully exposed, who is leaving the game? Who will remain?
From "Wild Arbitrage" to "Highly Institutionalized"
If we turn back the clock to 2017, modern "crypto market makers" were practically nonexistent.
Market making at that time was more like a frenzy of gray arbitrage. Borrowing, dumping, replenishing, returning... dumping tokens when liquidity was plentiful, and slowly accumulating tokens in the long tail. The boundaries between exchanges, project teams, and market makers were extremely blurred; price manipulation and fraudulent transactions, considered serious crimes in traditional finance, were commonplace at the time.
But time is relentlessly eliminating this model.
The consensus among many interviewees is that market makers in 2017 relied on boldness and information asymmetry; today, they rely on systems, risk control, and compliance.
The core of this change is not simply an "upgrade in gameplay," but a fundamental shift in the industry's underlying structure. In the past, whether market makers "followed the rules" might have been a moral choice; now, it's a matter of life and death.
Joesph, an investment partner at Klein Labs, revealed that all of their current operations must revolve around "auditability." Contractual compliance, financial audits, transaction details, and delivery reports have gone from "optional" to "default configuration." As a result, compliance costs now account for 30% to 50% of total operating expenses.
With the accelerated compliance process of exchanges, increased transparency in project financing paths, and the mainstreaming of regulatory narratives, the survival logic of market makers is being forced to restructure. The old, unregulated model of "black box operations + results-oriented" practices is being systematically eliminated.
A clear signal is that more and more market makers are incorporating "Regulation First" into their brand narrative, no longer avoiding the topic.
The shift in roles is equally profound. In the early days of the industry, market makers were merely the execution layer; project teams provided funds and tokens, and market makers were responsible for placing orders. Now, market makers are more like secondary partners.
"Whether we take on a project has become akin to an investment decision. The project's fundamentals, circulation structure, exchange allocation, and volatility range are all quantitatively assessed in advance," says Joesph. "Projects whose market capitalization doesn't even crack the top 1000 might not even qualify for discussion."
The reason is simple. A single poor-quality project can devour a market maker's entire year's risk budget. In this sense, market making is no longer a simple "service fee business," but a long-term game surrounding risk exposure.
Of course, arbitrage has not completely disappeared, but it has been marginalized.
In the industry's darker corners, high-risk, high-ambiguity operations still exist, but their scaling is increasingly difficult, and their survival space is extremely compressed. When exchanges, project teams, and market sentiment unanimously favor "steady liquidity," those who break the rules become a systemic risk.
In the current crypto market-making landscape, "following the rules" has, for the first time, transformed from a moral constraint into a core competitive advantage.
Excessive profits are disappearing.
Compared to the last bull market, project teams have significantly reduced their budgets for market makers. "Data shows that some projects have even reduced their token budgets by 50% this year compared to the previous round," noted Vicent, CIO of Kronos Labs.
But this is not merely a matter of "budget cuts"; the deeper driving force comes from the evolution of the mindset of the clients (project teams).
Project teams have significantly improved their understanding of market-making. They are beginning to understand the profit margins of market makers and are no longer satisfied with vague liquidity promises. Instead, they demand quantifiable KPIs, clear delivery logic, and in-depth explanations of the efficiency of each fund's use.
In short, less capital, higher demands.
Faced with this pressure, leading market makers have not blindly engaged in price wars. Vicent emphasizes that market making is an industry heavily reliant on systems, risk control, and experience. Once a price quote falls below the cost of risk coverage, market makers face not just declining profits, but a survival crisis. Therefore, when the risk-reward ratio is unbalanced, they prefer to abandon the business.
This means the market hasn't been completely overwhelmed by "low-price players," but rather a group of survivors who adhere to ethical standards has emerged.
Currently, another phenomenon is the scarcity of high-quality clients and the unprofitability of long-tail projects.
Reele of ATH-Labs stated, "The number of projects with genuine market-making value is far less than the number of market makers in the market." Many long-tail projects, due to insufficient depth or arbitrage opportunities, struggle to generate sustainable returns even if they meet market-making targets.
This leads to a classic "too many cooks spoil the broth" situation: top market makers are concentrated in high-quality projects, while smaller teams are forced into fierce competition on low-profit, high-risk, marginal projects.
In this context, market making is degenerating from a simple "profit center" into a "relationship entry point." Many market makers view market making as a stepping stone to long-term partnerships, using it as a starting point to enter project treasury management, OTC trading, structured products, and even become secondary market advisors or asset managers.
In other words, the real profits are increasingly not in the "market making fee," but in the subsequent structure. This explains why many still-active market makers are simultaneously expanding into investment, asset management, and advisory services; they are not transforming, but rather seeking "survival space" for a shrinking core business.
Industry Reshaping: The Splitting of the Table
In the previous cycle, competition among market makers mainly occurred at the same table: the same exchanges, the same product forms, and the same liquidity metrics.
This year, however, this table is being split.
The emergence of new tracks such as on-chain market making, derivatives, and stock tokenization is systematically changing the competitive landscape of market makers.
On a narrative level, on-chain market making is often labeled as "open and decentralized," but in practice, the barriers to entry are rising rather than falling. The uncertainty of real liquidity, the limitations of the execution environment, and the inherent risks of smart contracts make it a completely different capability curve, rather than a game-changer.
Compared to on-chain market making, derivatives market making exhibits the opposite characteristics. Its entry barrier is high, but once established, its competitive advantage is extremely deep.
In derivatives market making, the contract market demands extremely stringent risk control and position management, naturally favoring institutional market makers with larger capital, more experience in risk control, and more mature systems. New players are not without opportunities in this field, but the margin for error is extremely low.
As for stock tokenization, although it is considered a key narrative connecting traditional finance, it is still in its early stages in terms of market making. Its core difficulty lies in the complexity of hedging and settlement structures, leading most market makers to maintain a "research first, cautious participation" attitude.
In other words, this is a field with extremely high potential, but one where a stable market-making model has not yet been formed.
In Reele's view, these new market-making fields are not only reshaping the industry structure but also a source of pressure for their innovation. Although customer numbers have decreased, it's still crucial to adapt to the ever-evolving new market dynamics and provide projects with better market-making strategies.
"The market-making industry is transitioning from a 'unified market' to a structured ecosystem of 'multi-track parallel development.' Competition among market makers is shifting from 'homogeneous involution' to cross-track capability differentiation," Reele stated.
The Moat of Crypto Market Makers
As the era of exorbitant profits recedes, roles shift, and the market segment diversifies, a reality becomes clear: competition among market makers is no longer about who is more aggressive, but about who is less prone to making mistakes.
At this stage, what truly differentiates them is not a single advantage, but a comprehensive set of systemic capabilities that are difficult to replicate.
These systemic capabilities include a stable trading system, a rigorous risk control system, strong research capabilities, compliance, and auditability—all of which collectively build the trust system for crypto market makers.
Joesph reveals that the credit and compliance costs incurred in building this trust system are currently the biggest expenses. While the crypto market maker industry is already highly competitive, newcomers may not necessarily be more experienced than established market makers in building consensus, reputation, and managing risk.
The crypto market shake-up of October 11, 2025, serves as a case in point. Vicent stated that this incident reflects the fact that the transmission speed of leverage and liquidation is now far faster than traditional risk control response mechanisms; the industry is undergoing rapid differentiation, with teams lacking sufficient infrastructure and risk control capabilities being eliminated, and the market evolving towards a more concentrated and institutionalized direction.
“Market making is now a systematic project. Those teams that truly survive in the long run are not those that avoid a single risk, but those that assume from the beginning that a cleansing will inevitably occur and prepare for it,” Vicent said.
In summary, the true moat for market makers lies in their “lack of reliance on fatal mistakes” at multiple key junctures. This leads to a seemingly counterintuitive result: the most successful market makers are those that are most restrained, institutionalized, and systematic.
As the market enters a new phase of full competition and institutionalized risk management, crypto market makers are no longer “marginal arbitrageurs,” but rather an indispensable yet highly constrained foundational role in the crypto financial system.
Its survival logic is becoming increasingly similar to traditional finance, operating with the precision of Wall Street's high-frequency trading giants, yet it operates in a "dark forest"—a market that never closes 24/7 and has volatility ten times that of Nasdaq.
This is not merely a return to traditional finance, but a species evolution under extreme conditions.
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