Original Title: "Farewell to the Wild West: Crypto Market Makers Undergo a 'Coming of Age'"
Original Author: Ada, DeepTide TechFlow
In the realm of cryptocurrency discourse, market makers seem to always occupy the top of the food chain. They are regarded as "system-level winners" on par with exchanges, and are imagined by outsiders as "siphons" that don't bear directional risk yet profit from every market fluctuation.
However, when you truly step into this industry, you encounter a harshly different reality: some people are wiped out overnight in extreme market conditions, others silently exit after a single risk-control failure, and even more are forced to completely reconstruct their business models amid shrinking profits, failed price wars, and the scarcity of high-quality assets.
The days of crypto market makers are far from as glamorous as they might seem.
Over the past two years, the industry has undergone a quiet yet bloody purge. As the tides of exorbitant profits recede and regulations tighten, compliance capabilities, risk control systems, and technological expertise have replaced the former reliance on boldness and gray-area operations as the new benchmarks for survival. This is no longer a game where "the bolder, the richer," but rather a long-term, professional, and low-error-tolerance survival competition.
Through in-depth interviews with multiple leading market makers, a highly consistent conclusion emerged: today's crypto market makers are no longer merely "liquidity providers." They are evolving into a hybrid form that combines the roles of "secondary market investors," "risk managers," and "infrastructure providers."
When the tide goes out, competition returns to rationality, and risks are fully exposed— who is leaving the game? And who can remain at the table?
From "Grassroots Arbitrage" to "Highly Institutionalized"
If we rewind to 2017, the modern concept of a "crypto market maker" almost did not exist.
At that time, market making was more like a frenzy of gray-area arbitrage. The process involved borrowing coins, dumping them, covering short positions, and repaying the borrowed coins. Traders would offload their holdings when liquidity was abundant and slowly accumulate positions during the long tail phase. The boundaries between trading platforms, project teams, and market makers were extremely blurred. Practices such as price manipulation and fictitious trading—considered serious crimes in traditional finance—were routine back then.
But time is mercilessly phasing out this model.
The consensus among multiple interviewees is that market makers in 2017 relied on courage and information asymmetry; whereas today's market makers depend on systems, risk control, and compliance.
The core of this change is not merely a "mechanical upgrade," but a fundamental shift in the underlying structure of the industry. In the past, whether market makers "followed the rules" might have been a matter of ethics; now, it is a critical lifeline that determines survival.
Joseph, a venture partner at Klein Labs, revealed that all current operations must revolve around "audibility." Contract standards, financial audits, transaction details, and delivery reports have shifted from "optional features" to "default configurations." As a result, compliance costs now account for 30% to 50% of total operational expenses.
As the compliance process of trading platforms accelerates, project financing channels become more transparent, and regulatory narratives gain mainstream acceptance, the survival logic of market makers is being forcibly restructured. The old "black-box operations + results-oriented" wild-west model is being systematically phased out.
A clear signal is that an increasing number of market makers are beginning to incorporate "Regulation First" (compliance first) into their brand narratives, no longer avoiding the topic.
The transformation of roles is equally profound. In the early days, market makers were merely execution layers, with project teams providing funds and tokens while market makers were responsible for placing orders. Today, market makers are more akin to secondary partners.
"We've turned the decision of whether to take on a project into something similar to an investment decision," Joseph said. "The fundamentals of the project, its circulation structure, exchange platform configuration, and volatility range are all quantitatively evaluated in advance." He added, "Projects that can't make it into the top 1,000 by market cap might not even be considered worth discussing."
The reason is simple. A single poor-quality project can consume an entire year's risk budget for a market maker. In this sense, market making is no longer a simple "fee-based business," but rather a long-term game centered around risk exposure.
Of course, grassroots arbitrage has not completely disappeared, but it has been marginalized.
In the shadowy corners of the industry, high-risk and high-opacity operations still exist, but their scalability is becoming increasingly difficult, with their survival space being compressed to the extreme. When trading platforms, project teams, and market sentiment all favor "stable liquidity," rule-breakers themselves become sources of systemic risk.
In today's crypto market-making field, "playing by the rules" has for the first time transformed from a moral constraint into a core competitive advantage.
Exorbitant profits are disappearing.
Compared to the previous bull market, project teams have significantly reduced their budget allocations for market makers. "Data shows that some projects this year are offering token budgets that are even 50% lower than during the previous bull cycle," noted Vicent, Chief Information Officer of Kronos Labs.
But this is not just a matter of "budget cuts"; a deeper driving force comes from the evolution of the client's (project sponsor's) mindset.
The project team's understanding of market-making operations has significantly improved. They now have a clearer grasp of the profit margins for market makers and are no longer satisfied with vague liquidity commitments. Instead, they demand quantifiable KPIs, clear delivery logic, and in-depth explanations regarding the efficiency of every fund allocation.
In short, there is less funding but higher demands.
Faced with this pressure, leading market makers have not blindly plunged into a price war. Vicent emphasized that market making is an industry that heavily relies on systems, risk control, and experience. Once the quoted price falls below the cost of covering risks, market makers will face not just a decline in profits, but a survival crisis. Therefore, when the risk-return ratio becomes unbalanced, they would rather give up.
This means that the market has not been completely penetrated by "low-price players," but instead has filtered out a group of survivors who have held firm to their bottom lines.
Another phenomenon currently emerging is the scarcity of high-quality customers and the unprofitability of long-tail projects.
Reele from ATH-Labs said, "The number of projects that truly have market-making value is far fewer than the number of market makers in the market." A large number of long-tail projects suffer from insufficient depth or are easily arbitraged, making it difficult to generate sustainable returns even if they meet market-making metrics.
This has led to a typical "more monks than porridge" situation: top market makers cluster around high-quality projects, while mid-sized and smaller teams are forced to compete fiercely in marginal projects with meager profits and extremely high risks.
Against this backdrop, market-making is evolving from a purely "profit center" into a "relationship gateway." Many market makers now view market-making as a stepping stone to secure long-term partnerships, using it as an entry point to access project treasury management, OTC trading, structured products, and even serving as a starting point for becoming secondary market advisors or asset managers.
In other words, real profits are increasingly no longer found in "market-making fees," but in subsequent structures. This also explains why many active market makers are simultaneously expanding into investment, asset management, advisory services, and other business lines. They are not undergoing a transformation, but rather seeking "survival space" for a core business that has already been compressed.
Industry Restructuring: The Splitting of the Playing Field
In the previous cycle, market maker competition mainly took place at the same table, with the same trading platforms, the same product forms, and the same liquidity metrics.
But this year, the table is being split.
The emergence of new areas such as on-chain market making, derivatives, and stock tokenization is systematically changing the competitive landscape for market makers.
At the narrative level, on-chain market making is often labeled as "open" and "decentralized," but in practice, the barriers to entry have not decreased—they have actually increased. The uncertainty of real liquidity, limitations in execution environments, and the persistent risks of smart contracts form an entirely different capability curve, rather than a case of simplified or "downgraded" competition.
Compared to on-chain market making, derivative market making exhibits opposite characteristics. It has a high entry barrier, but once established, it can create a very deep moat.
In derivatives market making, contract markets impose extremely strict requirements on risk control and position management, which naturally favors institutional market makers with larger capital scales, more experienced risk control, and more mature systems. In this arena, new players are not without opportunities, but the margin for error is extremely low.
As for tokenized stocks, although they are considered a key narrative for bridging traditional finance, they are still in the early stages in terms of market-making. The core challenge lies in the complexity of hedging and settlement structures, leading most market makers to adopt a "research first, cautious participation" approach.
In other words, this is a track with extremely high potential but a stable market-making model has yet to be established.
In Reele's view, these new types of market-making tracks are not only reshaping the industry structure but also serving as a source of pressure for innovation. Although there has been a slight reduction in client volume, they still need to quickly adapt to the ever-emerging new strategies in the market and provide better market-making solutions for project teams.
"The market-making industry is evolving from a 'unified market' toward a 'multi-track parallel' structured ecosystem. Competition among market makers is shifting from 'homogeneous overcompetition' to differentiated capabilities across different tracks," Reele stated.
The Moat of Encrypted Market Makers
After the tide of excessive profits recedes, roles shift forward, and market tracks become differentiated, a reality gradually becomes clear: competition among market makers is no longer about who is more aggressive, but rather about who makes fewer mistakes.
At this stage, what truly creates a gap is not a single advantage, but a complete system of capabilities that are difficult to replicate.
The system capabilities here include a stable trading system, a strict risk control framework, strong research capabilities, compliance and auditability, and these collectively build the trust system for crypto market makers.
Joseph revealed that the credit and compliance costs incurred in building this trust system are currently the largest expenses. Although the crypto market-making industry is already a highly competitive market, newcomers may not necessarily have more experience than established market makers in building consensus and reputation or managing risks.
The crypto market purge on October 11, 2025, serves as a validation of this trend. Vicent noted that the event highlighted how the speed of leverage and liquidation has far outpaced traditional risk control response mechanisms. The industry is accelerating its segmentation, and teams lacking robust infrastructure and risk management capabilities will be eliminated. The market is evolving toward greater concentration and institutionalization.
"Market making has already become a systematic project. What can truly remain in the long run are not the teams that just happen to avoid a single risk, but the teams that from the very beginning assume that a washout will definitely happen and prepare for it accordingly," said Vicent.
Overall, the true moat of market makers lies in their ability to "avoid making fatal mistakes" at multiple critical junctures. This leads to a seemingly counterintuitive outcome in the industry: the most successful market makers are those who are the most restrained, institutionalized, and systematic.
As the market enters a new phase characterized by full competition and institutionalized risk, crypto market makers are no longer "marginal arbitrageurs," but rather essential yet highly constrained foundational players within the crypto financial system.
Its logic of survival is increasingly resembling that of traditional finance, operating with the precision of Wall Street's high-frequency trading giants, yet existing within a "dark forest"—a 7x24 hour non-stop market with volatility ten times that of NASDAQ.
This is not only a return to traditional finance, but also a species evolution under extreme conditions.
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