Farewell to the Wild West: Crypto Market Makers Celebrate Their Coming of Age

In the realm of cryptocurrency discourse, 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—like "water pumps" collecting tolls.

However, when you truly step into this industry, a different, harsher picture emerges: some get wiped out overnight during extreme market conditions, others exit in shame due to a single risk control mistake, and many more are forced to overhaul their entire business models amid profit halving, failed price wars, and scarce quality assets.

Crypto market maker days are far from glamorous.

Over the past two years, the industry has undergone a quiet yet bloody cleansing. As sky-high profits recede and regulations tighten, compliance capabilities, risk control systems, and technological 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 wins," but more akin to a long-term, professional, low-tolerance survival race.

Deep interviews with several leading market makers reveal a highly consistent judgment: current crypto market makers are no longer merely "liquidity providers," but are evolving into a hybrid role of "Secondary Market Investors + Risk Managers + Infrastructure."

When the tide recedes, competition becomes rational, and risks are fully exposed—who is leaving? Who can stay at the table?

From "Wild West Arbitrage" to "Highly Institutionalized"

If we turn back to 2017, the modern concept of "crypto market maker" was almost nonexistent.

Back then, market making was more like a spree of gray-area arbitrage. Borrowing tokens, dumping, replenishing, 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. Operations like price manipulation and fake trades—considered serious crimes in traditional finance—were commonplace.

But time is ruthlessly phasing out this model.

Consensus among 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 style," 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 is a matter of life and death.

Joesph, Investment Partner at Klein Labs, reveals that all current operations must revolve around "auditability." Contract standards, financial audits, transaction details, delivery reports—these are no longer optional but 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 reconfigure. The old "black box operation + results-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 branding 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. Today, they are more like secondary partners.

"Deciding whether to take on a project now resembles an investment decision. The project's fundamentals, circulation structure, exchange placement, and volatility range are all pre-quantified and assessed," Joesph explains. "Projects outside the top 1000 market cap might not even qualify for discussions."

The reason is simple. A subpar project can consume an entire year's risk budget for a market maker. 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 has been marginalized.

In the industry's shadows, high-risk, high-gray-area operations still exist, but their scale is increasingly difficult to expand, and survival space is severely limited. When exchanges, project teams, and market sentiment 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.

Profits Are Disappearing

Compared to the last bull run, 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, Chief Information Officer at Kronos Research.

But this is not just about "budget cuts"; the deeper driver is the evolution of the client (project team) mindset.

Project teams now have a much better understanding of market making. They are beginning to grasp the profit margins, 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 demands.

Faced with this pressure, top market makers are not blindly engaging 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 declining profits but survival crises. Therefore, when risk-reward ratios become unbalanced, they prefer to withdraw.

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 classic "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 shifting from a simple "profit center" to 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 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 seeking "lifelines" for a main business that has been squeezed.

Industry Reshaping: The Table’s Fragmentation

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

This year, that table is being dismantled.

The emergence of new tracks like on-chain market making, derivatives, and tokenized stocks is systematically changing the competitive landscape.

On the narrative level, on-chain market making is often labeled as "open, decentralized," but in practice, its barriers are rising rather than falling. Uncertainty about real liquidity, operational environment constraints, and the risks of smart contract failures 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 barriers are high, but once established, it offers deep moats.

In derivatives, the contract markets demand extremely strict risk control and position management, naturally favoring larger, more experienced, and systemically mature institutional market makers. While new entrants do have opportunities, their tolerance for errors is very low.

As for stock tokenization, viewed as a key narrative connecting traditional finance, it remains in early stages at the market making level. The main challenges are hedging and settlement complexities, leading most market makers to adopt a "research-first, cautious participation" stance.

In other words, this is a high-potential but still immature market segment without a stable market-making model.

Reele sees these new market-making tracks as not only reshaping industry structure but also sources of pressure for innovation. Although client numbers have decreased, market participants must quickly adapt to emerging new strategies and offer better market-making solutions to project teams.

"Crypto market makers are evolving from a 'single-market' model to a 'multi-track' structured ecosystem. Competition is shifting from 'homogeneous internal competition' to capability differentiation across multiple tracks," Reele states.

Crypto Market Makers’ Moats

As sky-high profits fade, roles shift, and tracks diversify, a new reality becomes clearer: 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, hard-to-duplicate system capability.

This includes stable trading systems, strict risk control frameworks, strong research capabilities, compliance, and auditability—all forming the trust system of crypto market makers.

Joesph reveals that the costs of building this trust system—credit costs and compliance expenses—are currently the largest expenditures. Although the crypto market maker industry is highly competitive, for newcomers, establishing consensus, reputation, and managing risks are not necessarily easier than for established players.

The major test was the market-wide cleanup on October 11, 2025. Vincent notes that this event reflected how quickly leverage and liquidation processes propagate—far faster than traditional risk control responses. The industry is accelerating its differentiation; teams with inadequate infrastructure and risk management will be eliminated, and the market will evolve toward greater concentration and institutionalization.

"Market making today is a systemic engineering project. Those who can survive long-term are not teams that just dodge a single risk, but those that have anticipated the possibility of a wipeout from the start and are prepared for it," Vincent says.

Overall, the true moat of a market maker lies in avoiding "fatal errors" at multiple critical points. This results in an apparently counterintuitive outcome: the most successful market makers are those who are most disciplined, institutionalized, and systematic.

As the market enters a phase of full competition and risk institutionalization, crypto market makers are no longer "marginal arbitrageurs," but essential yet highly constrained foundational players in the crypto financial system.

Their survival logic is increasingly aligned with traditional finance—operating with the precision of Wall Street’s high-frequency trading giants—yet within a "dark forest" of 7x24 hours, never closing, with volatility ten times that of Nasdaq.

This is not just a return to traditional finance but an evolutionary leap in extreme environments.