Farewell to the grassroots, crypto market makers迎来“coming of age”

Written by: Ada, Deep Tide TechFlow

In the cryptocurrency public opinion arena, market makers seem to always stand at the top of the food chain. They are regarded as “system-level winners” alongside exchanges, imagined by outsiders as “water pumps” that do not bear directional risk but can profit from every market fluctuation.

However, when you truly step into this industry, you see a different, brutal scene: some get liquidated overnight during extreme market conditions, some exit in disappointment due to a single risk control mistake, and more are forced to reconstruct their entire business model amid profit halving, failed price wars, and scarce quality assets.

The days of crypto market makers are far from glamorous.

Over the past two years, the industry has undergone a quiet yet bloody cleansing. As exorbitant profits recede and regulations tighten, compliance capabilities, risk control systems, and technological accumulation have replaced the once boldness and grayscale operations, becoming the new thresholds for survival. This is no longer a game of “who dares to be bold makes money,” but more like a long-term, professional, low-tolerance survival race.

In in-depth interviews with several leading market makers, a highly consistent judgment has emerged: current crypto market makers are no longer simply “liquidity providers,” but are evolving into a hybrid of “secondary market investors + risk managers + infrastructure.”

When the tide recedes, competition becomes rational, risks are fully exposed—who is leaving? Who can stay at the table?

From “grassroots arbitrage” to “highly institutionalized”

If we rewind to 2017, the modern concept of “crypto market maker” was almost nonexistent.

Back then, market making was more like a carnival of gray arbitrage. Borrowing coins, smashing the order book, replenishing, returning coins… dumping chips when liquidity was abundant, slowly accumulating during long-tail periods. The boundaries between exchanges, project teams, and market makers were extremely blurred, and operations like price manipulation and fake trades—considered serious crimes in traditional finance—were commonplace.

But time is ruthlessly eliminating this model.

Consensus among multiple interviewees is that, in 2017, market makers relied on boldness and asymmetric information; today’s market makers depend on systems, risk control, and compliance.

The core of the change is not merely an upgrade in “play methods,” but a fundamental shift in the industry’s underlying structure. In the past, whether a market maker “followed the rules” might have been a moral choice; now, it is a matter of life and death.

Joesph, investment partner at Klein Labs, revealed that all their current operations must revolve around “auditability.” Contract standards, financial audits, transaction details, delivery reports—these have shifted from “optional” to “default.” As a result, compliance costs now account for 30%–50% of total operational expenses.

With the accelerated compliance process of exchanges, transparent project fundraising paths, and mainstream regulatory narratives, the survival logic of market makers is being forced to reconstruct. The old “black box operation + result-oriented” grassroots model is systematically being phased out.

A clear signal is that more and more market makers are beginning to incorporate “Regulation First” into their brand narratives, no longer avoiding the topic.

The role has also undergone a profound transformation. In the grassroots era, market makers were merely execution layers, with project teams providing funds and tokens, and market makers responsible for order placement. Now, they are more like secondary partners.

“Whether we take on a project has become similar to an investment decision. The project’s fundamentals, circulation structure, exchange configuration, and volatility range are all pre-quantified and evaluated,” Joesph said. “Projects with a market cap outside the top 1000 may not even qualify for discussions.”

The reason is simple. A poor-quality project can consume a market maker’s risk budget for an entire year. In this sense, market making is no longer just a “service fee business,” but a long-term game centered on risk exposure.

Of course, grassroots arbitrage has not completely disappeared, but it has been marginalized.

In the industry’s dark corners, high-risk, high-gray-area operations still exist, but their scale is increasingly difficult to expand, and survival space is being squeezed to the limit. When exchanges, project teams, and market sentiment all favor “steady liquidity,” players who do not follow the rules become systemic risks themselves.

In today’s crypto market making, “compliance” has shifted from a moral constraint to a core competitive advantage for the first time.

Profits are disappearing

Compared to the last bull market, project teams are significantly reducing their budgets for market makers. “Data shows that some projects this year have allocated even 50% less Token budget than in the previous cycle,” said Vicent, CIO of Kronos Labs.

But this is not just a matter of “budget cuts”; a deeper driving force is the evolution of the client-side (project teams) mindset.

Project teams now have a much better understanding of market making. They are beginning to understand the profit margins of market makers, no longer satisfied with vague liquidity promises, but demanding quantifiable KPIs, clear delivery logic, and in-depth explanations of the efficiency of every dollar spent.

In short, less funding, higher requirements.

Faced with this pressure, top market makers have not blindly engaged in price wars. Vicent emphasized that market making is an industry that relies heavily on systems, risk control, and experience. If quotes fall below the risk coverage cost, market makers face not just profit decline but survival crisis. Therefore, when risk-reward ratios become unbalanced, they prefer to give up.

This means the market has not been completely broken by “low-price players,” but rather a group of resilient survivors who stick to their bottom line has been filtered out.

Another phenomenon is that high-quality clients are scarce, and long-tail projects are unprofitable.

Reele from ATH-Labs stated: “The number of projects truly worth market making is far less than the number of market makers in the market.” Many long-tail projects lack depth or are easily arbitraged, so even if they meet market making targets, sustainable profits are hard to generate.

This results in a typical “more monks than porridge” situation: top market makers cluster around high-quality projects, while small and medium teams can only compete on the margins of thin profits and high risks.

In this context, market making is evolving from a simple “profit center” into a “relationship gateway.” Many market makers see it as a stepping stone to long-term cooperation, using it to access project teams’ Treasury management, OTC trading, structured products, and even becoming secondary market advisors or asset managers.

In other words, the real profits are increasingly found not in “market making fees,” but in subsequent structural activities. This explains why many active market makers are expanding into investment, asset management, and consulting services—they are not just transforming but seeking “lifespan extension” for a main business that has been squeezed.

Industry reshaping: splitting the table

In the previous cycle, competition among market makers mainly occurred on the same table—same exchanges, same product types, same liquidity metrics.

This year, that table is being split.

The emergence of new tracks such as on-chain market making, derivatives, and tokenized stocks is systematically changing the competitive landscape of market makers.

On the narrative level, on-chain market making is often labeled as “open, decentralized,” but in practice, its barriers are not lowered but raised. The uncertainty of real liquidity, execution environment limitations, and the normal risks of smart contracts make it a completely different capability curve, not a simple lower-dimensional version.

Compared to on-chain market making, derivatives market making exhibits opposite characteristics. Its entry barrier is high, but once established, it has a deep moat.

In derivatives market making, the contract market demands extremely strict risk control and position management, naturally favoring larger capitalized, more experienced, and more mature institutional market makers. There is still room for new entrants, but the tolerance for errors is very low.

As for stock tokenization, although viewed as a key narrative connecting traditional finance, it remains in early stages at the market making level. The main difficulty lies in hedging and settlement structure complexity, leading most market makers to adopt a “research-first, cautious participation” attitude.

In other words, this is a high-potential track that has yet to establish a stable market making model.

Reele believes that these new market making tracks are not only reshaping industry structure but also sources of pressure for their innovation. Although client sources have decreased, they still need to adapt quickly to emerging new gameplay in the market and provide better market making strategies for projects.

“The crypto market making industry is shifting from a ‘single market’ to a ‘multi-track parallel’ structured ecosystem. Competition among market makers is moving from ‘homogeneous internal competition’ to capability differentiation across tracks,” Reele said.

Crypto market makers’ moat

As exorbitant profits recede, roles shift, and tracks diversify, a clear reality emerges: competition among market makers is no longer about “who is more aggressive,” but about “who is less likely to make mistakes.”

At this stage, the real difference is not a single advantage but a comprehensive, hard-to-duplicate system capability.

This system capability includes stable trading systems, strict risk control frameworks, strong research abilities, compliance, and auditability—all of which build the trust system of crypto market makers.

Joesph revealed that the costs of building this trust system—credit costs and compliance costs—are currently the biggest expenses. Although the crypto market making industry is already highly competitive, for newcomers, establishing consensus and reputation, as well as managing risks, may not be easier than for established players.

The major test was the crypto market cleanup on October 11, 2025. Vicent said this event reflected that the transmission speed of leverage and liquidations has far surpassed traditional risk control response mechanisms; the industry is accelerating its differentiation, and teams with inadequate infrastructure and risk control will be eliminated. The market will evolve toward greater concentration and institutionalization.

“Market making today is a systematic engineering. Those who can truly survive long-term are not teams that dodge a single risk, but those that assume cleansing will happen from the start and prepare for it,” Vicent said.

Overall, the real moat of market makers lies in their ability to avoid “fatal mistakes” at multiple critical nodes. This results in an apparently counterintuitive outcome: the most successful market makers are those who are most restrained, most institutionalized, and most systematic.

As the market enters a stage of full competition and risk institutionalization, crypto market makers are no longer “marginal arbitrageurs,” but indispensable yet highly constrained foundational roles in the crypto financial system.

Their survival logic is increasingly close to traditional finance—operating with the precision of Wall Street high-frequency trading giants, yet in a “dark forest” environment that never closes, with volatility ten times that of Nasdaq, operating 7x24.

This is not only a return to traditional finance but also an evolution of species under extreme conditions.