Farewell to the Wild West: How do crypto market makers achieve their "coming of age"?

Author: Ada, Deep Tide TechFlow

Original Title: Saying Goodbye to the Wild West, Crypto Market Makers Welcome Their “Coming of Age”

In the discourse surrounding cryptocurrencies, market makers seem to always sit at the top of the food chain. They are regarded as “system-level winners” alongside exchanges, imagined by outsiders as entities that do not bear directional risk but can profit from every market fluctuation, acting as “liquidity extractors.”

However, when you truly delve into this industry, you see a different, more brutal scene: some get liquidated overnight during extreme market conditions, others exit in shame due to a single risk control mistake, and more are forced to reconstruct their entire business models 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 windfall profits recede and regulations tighten, compliance capabilities, risk control systems, and technical accumulation have replaced the once-boldness and gray-area operations, becoming the new thresholds for survival. This is no longer a game of “who dares the most makes the most 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 merely “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 “Wild Arbitrage” to “Highly Institutionalized”

If we turn back to 2017, the modern concept of “crypto market makers” barely existed.

Back then, market making was more like a spree of gray-area arbitrage. Borrowing tokens, dumping, rebalancing, returning tokens… selling off during periods of abundant liquidity, slowly accumulating during long tail phases. The boundaries between exchanges, project teams, and market makers were extremely blurred. Price manipulation and false trading—operations considered felonies in traditional finance—were commonplace.

But time is ruthlessly eliminating this model.

Consensus among many 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, a partner at Klein Labs, reveals that all their current operations must revolve around “auditability.” Contract standards, financial audits, transaction details, delivery reports—these have shifted from optional to default configurations. 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 itself. The old “black box operation + result-oriented” wild-west model is systematically being phased out.

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

The role transformation is equally profound. In the wild west era, market makers were merely execution layers, with project teams providing funds and tokens, and market makers responsible for order placement. Now, market makers 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 configurations, and volatility ranges are all pre-quantified and evaluated,” Joesph says. “Projects outside the top 1000 in market cap 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, wild-west arbitrage has not disappeared entirely, 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 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.

The Disappearance of Excessive Profits

Compared to the last bull market, project teams are significantly reducing their budgets for market makers. “Data shows that some projects this year have cut their token budgets by as much as 50% compared to the previous cycle,” notes Vincent, CIO of Kronos Research.

But this is not just a matter of “budget cuts”; the 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 capital efficiency.

In short, less funding, higher requirements.

Faced with this pressure, top market makers have not blindly engaged in price wars. Vincent emphasizes that market making is an industry that relies heavily on systems, risk control, and experience. If quotes fall below risk coverage costs, market makers face not just profit decline but survival crises. 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 has been filtered out.

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

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

This results in a typical “more monks than porridge” scenario: top-tier market makers cluster around high-quality projects, while small and medium teams are forced to 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 market making as an entry point into project teams’ treasury management, OTC trading, structured products, or 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 merely transforming but are seeking “lifelines” for a main business that has been compressed.

Industry Reshaping: The Splitting of the Card Table

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

This year, that card 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, operational environment restrictions, and the normal risks of smart contracts make it a completely different capability curve, not a simplified 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 markets demand extremely strict risk control and position management, naturally favoring larger capital, more experienced risk teams, and more mature systems. New entrants do have opportunities, 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 challenges are the complexity of hedging and settlement structures, 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 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’ structured ecosystem. Competition among market makers is moving from ‘homogeneous internal competition’ to capability differentiation across tracks,” Reele states.

The Moat of Crypto Market Makers

As excess profits fade, 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 prone to mistakes.”

At this stage, the real differentiator is not a single advantage but a comprehensive set of system capabilities that are difficult to replicate.

These system capabilities include stable trading systems, strict risk control frameworks, strong research capabilities, compliance, and auditability—all of which build the trust system of crypto market makers.

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

The major market cleansing on October 11, 2025, serves as a proof point. Vincent states that this event reflects that the transmission speed of leverage and liquidations has far surpassed traditional risk 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. The teams that can truly survive long-term are not those that dodge a single risk, but those that assume cleansing will happen from the start and prepare accordingly,” Vincent says.

Overall, the true moat of market makers lies in avoiding “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 essential yet highly constrained foundational roles in the crypto financial system.

Their survival logic is increasingly aligned with traditional finance—operating with the precision of Wall Street high-frequency trading giants—yet within a “dark forest” of 7×24 hours, never closing, with volatility ten times that of Nasdaq.

This is not only a return to traditional finance but also an evolutionary race in extreme environments.