Author: Ada, Deep Tide TechFlow
Original Title: Farewell to Chaos, Crypto Market Makers Usher in Their 'Rite of Passage'
In the court of public opinion surrounding cryptocurrency, market makers always seem to stand at the top of the food chain. They are seen as "system-level winners" alongside exchanges, imagined by outsiders as "pumps" that don't bear directional risk but profit from every market fluctuation.
However, when you truly step into this industry, you see a completely different, brutal reality: some blow up overnight during extreme market conditions, some leave quietly after a single risk control failure, and more are forced to restructure their entire business model while squeezed by halved profits, ineffective price wars, and a scarcity of quality assets.
The life of a crypto market maker is far from as rosy as imagined.
Over the past two years, the industry has undergone a quiet yet bloody cleansing. As the era of huge profits recedes and regulations tighten, compliance capabilities, risk control systems, and technological foundations have replaced the former audacity and gray-area operations, becoming the new thresholds for survival. This is no longer a game of "who dares, wins," but more like a long-term, professional, low-tolerance survival race.
In deep interviews with several leading market makers, a highly consistent judgment emerged: today's crypto market makers are no longer simply "liquidity providers"; they are evolving into a hybrid form of "secondary market investors + risk managers + infrastructure."
As the tide recedes, competition returns to rationality, and risks are fully exposed, who is leaving? And who gets to stay at the table?
From "Chaotic Arbitrage" to "Highly Institutionalized"
If we turn the clock back to 2017, the modern concept of "crypto market makers" barely existed.
Market making back then was more like a狂欢 (carnival) of gray-area arbitrage. Borrowing coins, dumping, buying back, returning coins... dumping筹码 (chips) when liquidity was ample, slowly accumulating during the tail period. The boundaries between exchanges, project teams, and market makers were extremely blurry. Operations considered serious crimes in traditional finance, like price manipulation and wash trading, were the norm.
But time is ruthlessly淘汰 (phasing out) this model.
The consensus from multiple interviewees is that market makers in 2017 relied on guts and information asymmetry; market makers today rely on systems, risk control, and compliance.
The core of the change is not merely an "upgrade in玩法 (tactics)" but a fundamental shift in the industry's underlying structure. In the past, whether a market maker "played by the rules" might have been a moral choice; now, it's a red line for survival.
Klein Labs investment partner Joesph revealed that all their current business must revolve around "auditability." Standardized contracts, financial audits, transaction details, and delivery reports have changed from "options" to "default configurations." Consequently, compliance costs now account for 30%~50% of total operational expenses.
As exchange compliance processes accelerate, project financing paths become more transparent, and regulatory narratives become mainstream, the survival logic of market makers is forced to重构 (restructure). The former model of "black-box operations + results-oriented" chaos is being systematically eliminated.
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 shift in role is equally profound. In the chaotic era, market makers were merely executors; project teams provided funds and tokens, and market makers handled order placement. Now, market makers are more like secondary partners.
"Whether we take on a project has become a question similar to an investment decision. The project's fundamentals, circulation structure, exchange configuration, and volatility range are all quantitatively assessed in advance," Joesph said. "Projects that can't break into the top 1000 by market cap might not even qualify for a discussion."
The reason is simple. One劣质 (low-quality) project can吞噬 (devour) a market maker's entire annual risk budget. In this sense, market making is no longer a simple "service fee business" but a long-term game围绕 (revolving around) risk exposure.
Of course, chaotic arbitrage hasn't completely disappeared, but it has been marginalized.
In the dark corners of the industry, high-risk, high-gray-area operations still exist, but their potential for scale is increasingly difficult, and their生存空间 (living space) is severely compressed. When exchanges, project teams, and market sentiment collectively prefer "steady-state liquidity," players who don't play by the rules become a systemic risk themselves.
In today's crypto market making field, "playing by the rules" has, for the first time, transformed from a moral constraint into a core competitive advantage.
The Era of Huge Profits is Fading
Compared to the last bull market, project teams' budget allocations for market makers have significantly shrunk. "Data shows that the token budgets provided by some projects this year have even decreased by 50% compared to the last cycle," pointed out Vincent, CIO of Kronos Research.
But this isn't just a matter of "budget cuts"; a deeper driver is the evolution of the甲方 (client-side - project teams) mindset.
Project teams' understanding of market making business has greatly improved. They have begun to understand market makers' profit margins, are no longer satisfied with vague promises of liquidity, and instead demand quantifiable KPIs, clear delivery logic, and in-depth explanations for the efficiency of every fund's usage.
In short: less money, higher demands.
Facing this pressure, leading market makers have not blindly engaged in price wars. Vincent emphasized that market making is an industry heavy on systems, risk control, and experience. Once quotes fall below the cost of risk coverage, market makers face not profit decline, but a survival crisis. Therefore, when the risk-reward ratio is unbalanced, they prefer to walk away.
This means the market hasn't been彻底击穿 (completely broken) by "low-price players"; instead, it has筛选 (screened) a group of survivors who stick to their bottom line.
A current phenomenon is: quality clients are scarce, long-tail projects are unprofitable.
Reele from ATH-Labs stated: "The number of projects truly worthy of market making is far fewer than the number of market makers in the market." A large number of long-tail projects, due to insufficient depth or being easily arbitraged, struggle to generate sustainable profits even if market making targets are met.
This leads to a typical "more monks than粥 (gruel)" situation: top market makers crowd into quality projects, while small and medium-sized teams are forced to内卷 (involution - compete intensely) in marginal projects with meager profits and extremely high risks.
Against this backdrop, market making business is regressing from a pure "profit center" to a "relationship entry point." Many market makers view market making as a敲门砖 (stepping stone) to secure long-term cooperation, using it to切入 (break into) project Treasury management, OTC trading, structured products, and even become a starting point for secondary market advisory or asset management.
In other words, the real profit is increasingly not in the "market making fee," but in the subsequent structures. This also explains why many still-active market makers are simultaneously expanding business lines like investment, asset management, and advisory services. They are not转型 (pivoting) but are finding "life-sustaining space" for a main business that has already been compressed.
Industry Reshaping: The Splitting of the Table
In the last cycle, competition among market makers mainly happened at the same table: the same exchanges, the same product forms, the same liquidity metrics.
This year, that table is splitting.
The emergence of new tracks like on-chain market making, derivatives, and tokenized stocks is systematically changing the competitive landscape for market makers.
On the narrative level, on-chain market making is often labeled "open, decentralized," but on a practical level, its barriers to entry have increased, not decreased. The uncertainty of real liquidity, limitations of the execution environment, and the常态化 (normalization) of smart contract risks make it a completely different capability curve, not a降维打击 (dimensionality reduction strike - easy win).
Compared to on-chain market making, derivatives market making shows the opposite characteristics. Its entry barrier is high, but once established, the moat is extremely deep.
In derivatives market making, the futures market has extremely strict requirements for risk control and position management, which makes derivatives market making naturally偏向 (favor) larger, more experienced, systemically mature institutional market makers. On this track, new players aren't without opportunity, but the容错率 (fault tolerance) is extremely low.
As for stock tokenization, while seen as a key narrative connecting traditional finance, it is still in its early stages regarding market making. Its core difficulty lies in the complexity of hedging and settlement structures, leading most market makers to maintain an attitude of "research first, participate cautiously."
In other words, this is a track with extremely high potential but one that hasn't yet formed a stable market making model.
In Reele's view, these new market making tracks are not only reshaping the industry structure but are also a source of innovation pressure for them. Although client sources have decreased, they still have to adapt to the endless stream of new玩法 (tactics) emerging in the market in a short time and provide project teams with better market making strategies.
"The market maker industry is moving from a 'unified market' to a structured ecosystem of 'multiple parallel tracks.' Competition among market makers is shifting from 'homogeneous involution' to capability differentiation across tracks," Reele stated.
The Moat of Crypto Market Makers
As huge profits recede, roles shift forward, and tracks differentiate, a reality becomes clear: competition among market makers is no longer about "who is more aggressive," but about "who is less likely to make mistakes."
At this stage, what truly creates a gap is not a single advantage, but a整套 (complete set) of system capabilities that are difficult to replicate.
These system capabilities include a stably operating trading system, a strict risk control体系 (system), powerful research capabilities, compliance and auditability, etc., and these共同筑起 (collectively build) the trust system of crypto market makers.
Joesph revealed that the信用成本 (credit cost) and compliance cost consumed in building this trust system are the biggest current开支 (expenses). Although the crypto market maker industry is already a fully competitive market, for newcomers, establishing consensus and reputation, as well as dealing with risks, might not necessarily be easier than for established market makers.
The great crypto market清洗 (cleansing) on October 11, 2025, was a verification. Vincent stated that this event reflected that the transmission speed of leverage and liquidation is far faster than traditional risk control reaction mechanisms; the industry is accelerating its分化 (differentiation), teams with insufficient infrastructure and risk control capabilities will be淘汰 (eliminated), and the market will evolve towards a more concentrated, more institutionalized direction.
"Market making today is a systems engineering project. Those who can stay long-term are not teams that躲过 (dodge) one risk, but teams that assume from the beginning that a清洗 (cleansing) will definitely happen and prepare for it," Vincent said.
Overall, the real moat for market makers is "not being prone to fatal mistakes" at multiple key nodes. This leads the industry to a seemingly counterintuitive result: the most successful market makers are the most restrained, most institutionalized, and most systematic ones.
As the market enters a new 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 getting infinitely closer to traditional finance, operating as precisely as Wall Street's high-frequency trading giants, yet placed in a "dark forest" that operates 7×24 hours non-stop with volatility ten times that of Nasdaq.
This is not just a return to traditional finance, but also an evolution of a species in an extreme environment.
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