In the cryptocurrency discourse, market makers seem to always be at the top of the food chain. They are seen as "systemic winners" alongside trading platforms, and are imagined by outsiders as "pumps" that do not bear directional risk but can reap profits from every market fluctuation.
However, when you actually enter this industry, you see a completely different and cruel scene: some people lose everything overnight in extreme market conditions, some leave the market in despair due to a single risk control mistake, and many more are forced to reconstruct their entire business model amidst halved profits, ineffective price wars, and a scarcity of quality assets.
The life of crypto market makers is far from glamorous.
Over the past two years, the industry has undergone a quiet yet brutal purge. As exorbitant profits recede and regulations tighten, compliance capabilities, risk control systems, and technological expertise have replaced the past daring 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 investors + risk managers + infrastructure."
When the tide recedes, competition returns to rationality, and risks are fully exposed, who is leaving the game? And who will remain at the table?
From "grassroots arbitrage" to "highly institutionalized"
If we turn back the clock to 2017, "crypto market makers" in the modern sense were almost non-existent.
Market making at that time was more like a frenzy of gray arbitrage. Borrowing, dumping, replenishing, and returning funds... dumping tokens when liquidity was plentiful and slowly accumulating them during the long tail period. The boundaries between trading platforms, project teams, and market makers were extremely blurred, and operations such as price manipulation and fraudulent transactions, which were 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; while today's market makers rely on systems, risk control, and compliance.
The core of the change is not simply an "upgrade of 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." Contract specifications, 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.
As trading platforms accelerate their compliance processes, project financing paths become more transparent, and regulatory narratives become more mainstream, the survival logic of market makers is being forced to restructure. The old, unregulated model of "black box operations + results-oriented" is being systematically eliminated.
A clear sign is that more and more market makers are incorporating "Regulation First" into their brand narratives and no longer shying away from it.
The shift in roles is equally profound. In the early days, market makers were merely the execution layer; the project team provided funds and tokens, and the market makers were responsible for placing orders. Now, market makers are more like second-tier partners.
"Whether we take on a project has become akin to an investment decision. The project's fundamentals, liquidity structure, trading platform configuration, and volatility range are all quantitatively assessed in advance," Joesph said. "Projects whose market capitalization doesn't even rank in the top 1000 may not even qualify for a discussion."
The reason is simple. A single poor-quality project can wipe out 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, grassroots arbitrage has not completely disappeared, but it has been marginalized.
In the shadows of the industry, high-risk, high-ambiguity operations still exist, but their scaling up is becoming increasingly difficult, and their survival space is being squeezed to the extreme. When trading platforms, project teams, and market sentiment all favor "stable liquidity," those who do not follow the rules themselves become systemic risks.
In the current crypto market-making field, "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 last round," noted Vicent, CIO of Kronos Labs.
But this is not just a matter of "budget cuts"; the deeper driving force comes from the evolution of the client's (project owner's) mindset.
Project teams have significantly improved their understanding of market-making. They have begun to understand the profit margins of market makers and are no longer satisfied with vague liquidity commitments. Instead, they demand quantifiable KPIs, clear delivery logic, and in-depth explanations of the efficiency of each use of funds.
In short, less money, higher requirements.
Faced with this pressure, leading market makers did not blindly engage in a price war. Vicent emphasized that market making is an industry that relies heavily on systems, risk control, and experience. Once the quoted price falls below the risk coverage cost, market makers will face not just a decline in profits, but a survival crisis. Therefore, when the risk-reward ratio is unbalanced, they would rather give up.
This means that the market has not been completely destroyed by "low-price players," but rather a group of survivors who adhere to the bottom line have been selected.
Another phenomenon emerging is that high-quality customers are scarce, and long-tail projects are not profitable.
ATH-Labs' Reele stated, "The number of projects with real 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, are unlikely to generate sustainable returns even if they meet market-making criteria.
This has led to a typical "too many monks, too little porridge" situation: top market makers flock to high-quality projects, while small and medium-sized teams can only compete in marginal projects with meager profits and extremely high risks.
Against this backdrop, market making is degenerating from a mere "profit center" into a "relationship gateway." Many market makers view market making as a stepping stone to securing long-term partnerships, using it as a starting point to enter into treasury management, OTC trading, structured products, and even to 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 also explains why many still active market makers are simultaneously expanding into investment, asset management, advisory and other business lines. They are not transforming themselves, but rather looking for "life-saving space" for a core business that has been compressed.
Industry Restructuring: The Dismantling of the Poker Table
In the previous cycle, competition among market makers mainly took place on the same table, with the same trading platform, the same product type, and the same liquidity metrics.
This year, however, the poker table is being dismantled.
The emergence of new sectors such as on-chain market making, derivatives, and stock tokenization is systematically changing the competitive landscape of market makers.
On the narrative level, on-chain market making is often labeled as "open and decentralized," but in practice, the barriers to entry are actually increasing. The uncertainty of real liquidity, the limitations of the execution environment, and the normalized risks of smart contracts make it a completely different skill curve, rather than a game-changer.
Compared to on-chain market making, derivatives market making exhibits the opposite characteristics. It has a high barrier to entry, but once established, it has an extremely deep moat.
In derivatives market making, the contract market demands extremely stringent risk control and position management. This naturally favors 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 seen as a key narrative connecting traditional finance, it is still in its 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 sector with extremely high potential, but a stable market-making model has not yet been established.
According to Reele, these new market-making tracks are not only reshaping the industry structure but also creating pressure for innovation. Although the customer base has decreased, they still need to adapt to the ever-emerging new market dynamics in a short period and provide project owners with better market-making strategies.
"The market maker industry is moving 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 said.
The moat of crypto market makers
As the era of exorbitant profits recedes, roles shift to more active players, and the market segment diversifies, a reality gradually becomes clear: competition among market makers is no longer about "who is more aggressive," but rather about "who is less prone to making mistakes."
At this stage, what truly sets us apart is not a single advantage, but a whole set of systemic capabilities that are difficult to replicate.
The system capabilities here include a stable trading system, a strict risk control system, strong research capabilities, compliance and auditability, etc., which together build the trust system of crypto market makers.
Joesph revealed that the credit and compliance costs incurred in building this trust system are currently the biggest expenses. Although the crypto market maker industry is already a highly competitive market, newcomers may not necessarily be more experienced than established market makers in building consensus and reputation, as well as managing risks.
The major shakeup in the crypto market on October 11, 2025, serves as a case in point. Vicent stated that this event 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 accelerated differentiation, teams with insufficient infrastructure and risk control capabilities will be eliminated, and the market will evolve towards a more concentrated and institutionalized direction.
"Market making is now a systematic project. The teams that can truly survive in the long run are not those that avoid a single risk, but those that assume from the beginning that a shakeout will inevitably happen and prepare for it," Vincent said.
In summary, the true moat of market makers lies in their "lack of reliance on making fatal mistakes" at multiple key junctures. This leads to a seemingly counterintuitive result in the industry: the most successful market makers are those who 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 fundamental role in the crypto financial system.
Its survival logic is getting closer and closer to traditional finance, operating as precisely as the high-frequency trading giants on Wall Street, but it is in a "dark forest" that never closes 24/7 and has volatility ten times that of Nasdaq.
This is not only a return to traditional finance, but also a species evolution under extreme conditions.
