What Token Projects Should Know Before Engaging a Market Maker

You've launched your token. An exchange listing is confirmed. Now three market making firms are in your inbox with proposals that look nothing alike. One wants a token loan worth 5% of your circulating supply. Another quotes a monthly retainer higher than your entire marketing budget. The third promises "guaranteed volume" with no explanation of how they'll deliver it.

How do you evaluate them? What questions should you ask? And is hiring a traditional market maker even the right move for your project stage?

This is the practical guide we wish existed when we started. It covers the red flags, the due diligence checklist, the cost models, and the decision framework for choosing between self-service and managed market making.

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Red Flags to Watch For

Not all market making firms operate with integrity. The space is largely unregulated, and misaligned incentives are common. Before evaluating any proposal, know what to walk away from.

Firms that won't explain their strategy. If a market maker can't articulate how they'll provide liquidity, what parameters they'll use, and how they'll handle different market conditions, that's a problem. You don't need to see their source code, but you should understand the general approach. "Proprietary algorithms" is not a strategy explanation.

Unrealistic volume guarantees. Any firm promising specific daily volume numbers is either planning to wash trade or lying. Legitimate market makers commit to maintaining order book depth and tight spreads. Volume is a byproduct of healthy liquidity, not something you manufacture. Promises like "we'll guarantee $500K daily volume" should immediately raise concerns.

Demanding excessive token loans. A market maker requesting more than 3% of your circulating supply as a token loan is overreaching. Some firms ask for 5-10%, which gives them enormous power over your token's price dynamics. The larger the loan, the more leverage they have and the less control you retain. As we covered in our pricing guide, token loans with aggressive call options can be the most expensive market making arrangement, even when marketed as "free."

No reporting or transparency. If the proposal doesn't include regular performance reports, real-time dashboards, or at minimum weekly summaries, you'll have zero visibility into what's happening with your liquidity. You should know exactly what orders are being placed, what spreads are being maintained, and how your inventory is being managed.

Lock-in contracts with no performance clauses. A 12-month contract with no performance benchmarks and no termination clause for underperformance is a one-sided deal. If the market maker misses spread targets for three consecutive months, you should have the right to exit.

Firms that trade against their own clients. This is the most serious red flag and the hardest to detect. Some firms use client token loans to take directional positions, profiting when the token drops. Ask directly whether the firm takes proprietary positions in the tokens they market-make. If the answer is evasive, move on.

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The Due Diligence Checklist

Before signing any market making agreement, get clear answers to these questions. A professional firm will answer all of them without hesitation.

Performance and KPIs

• What specific KPIs will you maintain? Get concrete numbers: maximum spread percentage (e.g., 1.5% on primary exchange), minimum order book depth on each side (e.g., $10,000 within 2% of mid-price), and uptime guarantee (e.g., 95%+).
• What happens when KPIs are missed? Are there fee reductions, remediation periods, or termination triggers?
• How do you handle extreme volatility? During a market crash, does the market maker widen spreads, reduce depth, or pull orders entirely? What are the defined thresholds?

Reporting and Transparency

• How will you report performance? Ask for sample reports. Good firms provide dashboards showing real-time spread, depth, and fill data.
• How often? Daily summaries are standard. Weekly detailed reports with monthly strategic reviews is a reasonable baseline.
• Can we audit your trading activity? If they're trading on your exchange accounts via API keys, you should be able to see every order. If they're trading from their own accounts using your token loan, you should still get trade-level reporting.

Token and Inventory Management

• What happens to our tokens during the engagement? Are tokens held on exchange, in the firm's custody, or managed through your own accounts? API-key-based management (where tokens stay in your exchange accounts) is significantly safer than transferring custody.
• What inventory do we need to provide? Get specific numbers for both token and stablecoin requirements per exchange.
• How is inventory rebalanced across exchanges? Manual or automated? Who covers the withdrawal and deposit fees?

Track Record and Fit

• What's your track record with similar-sized projects? A firm that exclusively serves top-50 tokens may not be the right fit for a $5M FDV project. Ask for references at your scale.
• What exchanges do you support? Confirm coverage for every exchange where your token is listed or will be listed.
• Do you have experience with our token's specific characteristics? Cardano native tokens, Solana SPL tokens, and ERC-20 tokens each have different on-chain dynamics.

Terms and Exit

• What are the termination terms? 30-day notice is standard. Anything longer than 90 days is a red flag.
• Is there a minimum commitment period? 3-6 months is reasonable. 12-24 months with no performance outs is not.
• What happens to inventory at termination? Get this in writing. Tokens should be returned within a defined period (typically 5-10 business days).

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Understanding the Cost Models

Market making pricing falls into three broad categories. We covered these in depth in our pricing guide, but here's the summary as it relates to choosing a provider.

Token loan + call options. You lend tokens; the firm gets options as compensation. This looks "free" but can cost millions in dilution if your token appreciates. Best suited for larger projects ($50M+ FDV) with strong negotiating leverage.

Monthly retainer. You pay a fixed fee ($2K-$100K+/month depending on scope and exchange coverage) and the firm delivers agreed KPIs. No token dilution, predictable costs. Best for early-to-mid-stage projects that want cost certainty and full control of their token supply.

Self-service tools. You run the market making yourself using open-source software. Zero monthly cost beyond infrastructure. Best for technically capable teams that want full control and can dedicate engineering resources.

The right model depends on your project stage, treasury runway, team capabilities, and how much control you're willing to hand over. Most projects under $100M FDV should avoid the token loan model entirely.

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When to Start Market Making

The most common mistake is waiting too long. Day-one liquidity matters more than most founders realize.

Before exchange listing, not after. The moment your token goes live on an exchange, traders will look at the order book. If it's empty, you've lost them. Coordinate with your market maker (or set up your own tooling) so that liquidity is live the moment trading opens. First impressions in crypto are hard to undo.

The cost of waiting. Every day without proper liquidity is a day where your holders can't trade efficiently, potential new buyers bounce off a thin order book, and your token develops a reputation for illiquidity. Exchanges monitor liquidity metrics too -- poor numbers can delay or prevent additional listings.

What "good enough" liquidity looks like. This depends on your project size:

• Small-cap (under $10M FDV): $5,000-$10,000 depth within 2% on each side of the book. Spreads of 2-3%. Active on 1-2 exchanges.
• Mid-cap ($10M-$100M FDV): $25,000-$50,000 depth within 2%. Spreads of 1-2%. Active on 2-3 exchanges.
• Large-cap ($100M+ FDV): $100,000+ depth within 2%. Spreads under 1%. Active on 3-5+ exchanges including at least one tier-1.

These are minimums, not targets. Better liquidity always helps, but achieving these baselines should be the immediate priority.

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Self-Service vs Managed: Choosing Your Path

The decision between running your own market making and hiring a firm isn't binary. There are three practical paths, and the right one depends on your team.

Self-Service with OpenMM

Open-source tools like OpenMM give you the same core market making strategies that professional firms use: grid trading, spread management, and multi-exchange execution.

Best for: Teams with trading knowledge or engineering talent who want full control over their strategies and parameters. Projects with limited budgets that can't justify $5,000+/month in retainers.

What you get: Zero monthly cost. Full visibility into every order. Ability to customize strategies to your token's specific characteristics. No lock-in contracts. No token loans or dilution.

What it requires: Someone on your team who can configure and monitor the system. Understanding of basic market making concepts like spreads and inventory management. Time to monitor and adjust parameters as market conditions change.

For a deeper look at how OpenMM compares to other self-service options, see our OpenMM vs Hummingbot comparison.

Managed Market Making with QBT Labs

Professional market making services handle the full operation: strategy design, execution, monitoring, and rebalancing across exchanges.

Best for: Teams focused on building product who can't or don't want to allocate engineering resources to trading infrastructure. Projects that need guaranteed uptime and SLAs for exchange requirements.

What you get: 24/7 operation without your team's involvement. Professional risk management. Multi-exchange coverage including both CEXs and DEXs. Regular reporting and performance tracking. Experience-backed strategy decisions.

What it requires: Monthly retainer budget. Trust in your provider (which is why the due diligence checklist above exists). Willingness to share API access or provide trading inventory.

The Hybrid Approach

Many projects find the best path is a combination: start with managed market making to establish healthy order books and learn what "good" looks like, then transition to self-service tooling as your team builds capability.

This works particularly well when the managed provider uses transparent infrastructure -- you can see exactly what strategies are running and what parameters produce the best results. When you're ready to take over, you have a proven playbook to replicate.

The hybrid approach also works in reverse: start self-service to keep costs low in the early stages, then bring in managed services when your project scales to a point where full-time professional coverage becomes necessary.

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What Good Market Making Looks Like

Whether you're evaluating a provider or running your own operation, here's what healthy market making looks like in practice.

Tight spreads. For mid-cap tokens ($10M-$100M FDV), spreads of 1-3% on primary exchanges are a reasonable target. Smaller tokens may run wider (3-5%), while larger tokens should aim tighter (under 1%). If your market maker is maintaining 5%+ spreads on a token with decent volume, they're underperforming.

Consistent depth on both sides. Good market making means reliable buy and sell orders across multiple price levels. Not just a thin layer at the best bid/ask, but real depth that can absorb larger trades without significant price impact.

Uptime above 95%. Markets don't sleep, and your liquidity shouldn't either. A professional operation maintains orders on the book at least 95% of the time, with brief gaps only during exchange maintenance or extreme market events. Anything below 90% is unacceptable.

Regular reporting. You should receive performance data on a schedule: daily snapshots, weekly summaries, and monthly reviews. Reports should include actual spread vs target, depth maintained, uptime percentage, and inventory changes.

Transparent operations. You should know -- at any point -- what orders are on the book, what your inventory position is, and how performance compares to agreed targets. Black-box operations are a relic of an era when token projects had no alternatives.

Price consistency across venues. If your token trades on multiple exchanges, the market maker should keep prices reasonably aligned. Persistent arbitrage gaps between venues suggest poor cross-exchange management.

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Market Making Decoded: Full Series

• Article 1: What Is Market Making? The Engine Behind Every Trade
• Article 2: The Anatomy of a Market Maker: How We Think About Spreads
• Article 3: Multi-Exchange Market Making: Running on CEXs and DEXs Simultaneously
• Article 4: What Token Projects Should Know Before Engaging a Market Maker (this article)

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QBT Labs builds professional trading infrastructure and provides market making services across multiple CEXs and DEXs. Based in Cyprus, serving Web3 teams globally.

Learn more: qbtlabs.io | [email protected]