Farewell to the Wild Era: Crypto Market Makers Embrace Their "Coming of Age"
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Farewell to the Wild Era: Crypto Market Makers Embrace Their "Coming of Age"
The life-and-death game of crypto market makers is akin to a process of species evolution in extreme environments.
Navigating Web3 tides with focused insightsText: Ada, TechFlow
In the realm of cryptocurrency discourse, market makers are often seen as occupying the top of the food chain. They are regarded as "system-level winners" on par with exchanges—imagined as profit-extracting machines that avoid directional risk while harvesting gains from every market fluctuation.
Yet, stepping into this industry reveals a far harsher reality: some blow up overnight during extreme market moves; others exit quietly after a single risk management failure; and many more are squeezed between halved profits, failed price wars, and scarce high-quality assets, forcing them to completely rebuild their business models.
The life of a crypto market maker is far less glamorous than it appears.
Over the past two years, the industry has undergone a quiet yet brutal cleansing. As excessive profits fade and regulations tighten, compliance capability, risk control systems, and technical depth have replaced boldness and gray-area operations as the new survival thresholds. This is no longer a game where “the boldest win,” but rather a long-term, professional, low-error-tolerance survival race.
In deep interviews with multiple leading market makers, one consistent insight emerged: Today’s crypto market makers are no longer just “liquidity providers,” but are evolving into hybrid entities combining the roles of “secondary-market investors + risk managers + infrastructure.”
As the tide recedes, competition turns rational, and risks become fully exposed—who is leaving the table, and who remains in the game?
From "Wild West Arbitrage" to "Highly Institutionalized"
Going back to 2017, modern-day "crypto market makers" barely existed.
Back then, market making resembled a carnival of gray arbitrage: borrowing tokens, dumping, rebuying, and repaying. During periods of strong liquidity, they dumped holdings; during illiquid phases, they slowly accumulated. The boundaries between exchanges, projects, and market makers were extremely blurred. Price manipulation and spoofing—actions considered serious crimes in traditional finance—were commonplace.
But time is ruthlessly phasing out this model.
Multiple interviewees agreed: in 2017, market makers succeeded through audacity and information asymmetry; today, success depends on systems, risk controls, and compliance.
The shift isn't merely about upgraded tactics—it reflects a fundamental transformation in the industry's underlying structure. Previously, whether a market maker "followed the rules" was a moral choice; now, it's a matter of life and death.
Joesph, Investment Partner at Klein Labs, revealed that all current operations must revolve around "auditable practices." Contract standardization, financial audits, trade logs, and delivery reports have shifted from "optional" to "default." As a result, compliance costs now account for 30%–50% of total operating expenses.
With accelerated exchange compliance, transparent project fundraising paths, and mainstream regulatory narratives, the very logic of market maker survival is being forced to evolve. The old "black-box execution + outcome-oriented" wild west model is being systematically eliminated.
A clear signal: more and more market makers now explicitly include "Regulation First" in their brand messaging, no longer avoiding the topic.
The role shift is equally profound. In the wild west era, market makers were mere executors—projects provided capital and tokens, and market makers placed orders. Today, market makers act more like secondary partners.
"Deciding whether to take on a project has become an investment decision. We quantitatively assess fundamentals, circulation structure, exchange listings, and volatility ranges," Joesph said. "Projects outside the top 1,000 by market cap may not even qualify for discussion."
The reason is simple: one poor-quality project can consume an entire year's risk budget. In this sense, market making is no longer a simple "service fee" business, but a long-term game centered on risk exposure.
Of course, wild west arbitrage hasn't vanished entirely—but it has been marginalized.
In the shadows of the industry, high-risk, high-gray operations still exist, but scaling them is increasingly difficult, and their room to maneuver is severely constrained. When exchanges, projects, and market sentiment collectively favor "stable liquidity," rule-breakers themselves become systemic risks.
In today’s crypto market making, "playing by the rules" has transformed—from a moral constraint into a core competitive advantage.
The Era of Excess Profits Is Over
Compared to the last bull market, projects have significantly reduced their budgets for market makers. "Data shows that token budgets offered by some projects this year are down as much as 50% from the previous cycle," noted Vincent, Chief Investment Officer at Kronos Research.
But this isn’t just about shrinking budgets—it reflects a deeper evolution in client (project-side) thinking.
Project teams now understand market making far better. They know the profit margins, no longer accept vague promises of liquidity, and instead demand quantifiable KPIs, clear delivery logic, and detailed explanations of how each dollar is used.
In short: less money, higher expectations.
Faced with this pressure, top-tier market makers haven’t blindly engaged in price wars. Vincent emphasized that market making is a field built on systems, risk control, and experience. Once quotes fall below risk coverage costs, the issue isn’t shrinking profits—it’s existential threat. Therefore, when risk-reward ratios become unbalanced, they’d rather walk away.
This means the market hasn’t been taken over by "low-cost players." Instead, it has filtered out those who uphold minimum standards.
Another emerging trend: high-quality clients are scarce, and long-tail projects don’t generate returns.
Reele from ATH-Labs stated: "The number of projects truly worthy of market making is far smaller than the number of market makers in the market." Many long-tail projects suffer from shallow liquidity or are easily exploited—even if market making targets are met, sustainable profits remain elusive.
This creates a classic "too many monks, too little porridge" scenario: top market makers cluster around premium projects, while smaller teams fight over thin-margin, high-risk edge cases.
Under these conditions, market making is shifting from a pure "profit center" to a "relationship gateway." Many market makers now view it as a foothold to secure long-term collaboration—gaining entry into treasury management, OTC trading, structured products, or serving as secondary market advisors or asset managers.
In other words, real profits are increasingly found not in "market making fees," but in downstream services. This explains why many active market makers are simultaneously expanding into investment, asset management, and advisory businesses—not because they’re transforming, but because they’re seeking lifelines for a core business that’s been compressed.
Industry Restructuring: The Table Is Being Split
In the last cycle, market makers competed on the same playing field—same exchanges, same product types, same liquidity metrics.
Today, that single table is fragmenting.
The emergence of new sectors such as on-chain market making, derivatives, and stock tokenization is systematically reshaping the competitive landscape.
Narratively, on-chain market making is often labeled "open and decentralized," but in practice, its barriers are rising, not falling. Uncertain real liquidity, execution environment constraints, and constant smart contract risks make it an entirely different skill set—not a downgrade, but a new challenge.
By contrast, derivatives market making exhibits opposite characteristics: high entry barriers, but once established, deep moats form.
Derivatives markets demand extreme rigor in risk and position management, naturally favoring larger-capital, experienced, system-mature institutional market makers. New entrants aren’t excluded, but the margin for error is razor-thin.
As for stock tokenization—though seen as a key bridge to traditional finance—market making here remains in early stages. The complexity of hedging and settlement structures causes most market makers to adopt a "research-first, cautious-participation" stance.
In short, it’s a high-potential sector without a stable market making model yet.
According to Reele, these new market making frontiers aren’t just restructuring the industry—they’re also the source of innovation pressure. Even as client volume shrinks, market makers must rapidly adapt to endless new market dynamics and deliver superior strategies to projects.
"The market making industry is shifting from a 'unified market' to a 'multi-track parallel' structured ecosystem. Competition among market makers is moving from 'homogeneous internal competition' to cross-sector capability differentiation," Reele said.
The Moat of Crypto Market Makers
After excess profits fade, roles evolve, and tracks diverge, a reality becomes clear: competition among market makers is no longer about "who’s bolder," but "who makes fewer fatal mistakes."
At this stage, what truly separates the leaders isn’t a single advantage, but an entire suite of hard-to-replicate systemic capabilities.
These include robust trading systems, strict risk controls, strong research capacity, compliance, and auditability—all forming the foundation of trust in crypto market making.
Joesph revealed that the cost of building this trust—credit cost and compliance cost—is now the largest expense. Although the crypto market making space is highly competitive, newcomers often lack the experience of established players in building consensus, reputation, and managing risks.
The October 11, 2025 crypto market purge served as a stark validation. Vincent noted the event showed that leverage and liquidation chains now propagate faster than traditional risk controls can react. The industry is rapidly splitting: teams with weak infrastructure and poor risk management are being eliminated, pushing the market toward greater concentration and institutionalization.
"Market making today is a full-scale system engineering effort. Those who survive long-term aren’t the ones who dodged one crisis, but those who assumed crises would happen—and prepared accordingly from day one," Vincent said.
Overall, the true moat of a market maker lies in minimizing fatal errors across multiple critical points. This leads to a seemingly counterintuitive outcome: the most successful market makers are the most restrained, institutionalized, and systematic ones.
As the market enters a new phase of fierce competition and institutionalized risk, crypto market makers are no longer "peripheral arbitrageurs," but indispensable yet tightly constrained foundational players in the crypto financial system.
Their operational logic increasingly mirrors traditional finance—operating with Wall Street-grade precision, yet existing within a 24/7 never-closing "dark forest" where volatility exceeds Nasdaq’s by tenfold.
This isn't just a return to traditional finance—it's a species evolution under extreme conditions.
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